(a) Who is a discriminating monopolist. (2 marks)
(b) Explain any four conditions necessary for a monopolist to practise price discrimination. (12 marks).
(c) Explain any two benefits enjoyed by a discriminating monopolist. (6 marks)
Explanation
(a) A discriminating monopolist is the one that charges different prices for the same commodity in different markets.
(b) Price discrimination may be possible and profitable under certain conditions. These are:
(i) Market segmentation: it must be possible to separate the markets into different segments or classes.
(ii) Different price elasticities of demand should exist in the different markets.
(iii) Little cost of separating the markets: the cost of separating the markets should be minimal so that it does not erode the profit.
(iv) Ignorance on the part of the consumer: if the consumer is not aware of the price in other markets, the monopolists can charge higher prices.
(v) Higher transport cost: if the transportation cost is high, it will stop consumers from moving from one market to the other.
(vi) No possibility of resale of product: the two markets must be distinct such that buyers in one market cannot resell to those being asked a higher price in another market.
(c)(i) Increase in revenue earnings.
(ii) Reduction in wastage: since the monopolist sells in different markets, the possibility of wastage is reduced.
(iii) Decrease in cost of production: since the monopolist can produce on a large scale, average cost of production is reduced.
(iv) Increase in sale/wider market.