Q.What is price discrimination? State the conditions necessary for a monopolist to practice it successfully.

Working — price discrimination across markets

Formula, with $P = 60$:

Market A ($E = 5$):

Market B ($E = 6$):

A profit-maximising monopolist equalises MR across markets by reallocating output to where MR is higher. Here $MR_B (50) > MR_A (48)$, so output should be increased in market B (the more elastic market, which also gets the lower price). …

Step 1 — Conditions required for price discrimination

1. The seller must have price-setting (monopoly) power.
2. The market must be divisible into two or more separable sub-markets.
3. The elasticity of demand must differ across the sub-markets (so different prices are profitable).
4. No resale (no seepage) — buyers in the cheap market must NOT be able to resell to the dear market, otherwise arbitrage wipes out the price gap.

Step 2 — Match the options

• (A) price-setting power — a valid condition.
• (B) ability to divide the market — a valid condition.
• (C) different elasticities in sub-markets — a valid condition.
• (D) buyers of the low-priced market CAN resell to the high-priced market — this is the very thing price discrimination must PREVENT. Stated as a condition, it is false. …

Step 1 — List the genuine objectives

A discriminating monopolist practises price discrimination to:

1. Earn maximum profit by charging each segment what it will bear.
2. Enjoy economies of scale by selling larger output at differentiated prices.
3. Secure equity — charge the rich more and the poor less (e.g. utility/rail tariffs), a welfare objective.

Step 2 — Test the odd option

Holding excess stock is not a purpose. Price discrimination is used to sell off surplus in a separate market, not to retain it. So it is the item that is NOT an object.

Step 3 — Select …

Step 1 — Conditions for price discrimination

To charge different prices for the same good the seller must (i) be a price MAKER with market power, (ii) be able to divide buyers into separable segments with different willingness to pay, and (iii) prevent resale between segments.

Step 2 — Which structure fits

A monopoly is a single seller with genuine control over price, able to segment its market and stop arbitrage — so it can practise price discrimination. Under perfect competition (C) firms are price takers and cannot; monopolistic competition (A) and oligopoly (D) have market power but the pure, textbook setting for price discrimination is monopoly. …