(a) Who is a discriminating monopolist. (2 marks) (b) Explain any four conditions necessary for a monopolist to practise price discrimination. (12 marks). (...

(a) A discriminating monopolist is a sole producer who charges different prices to different consumers (or in different markets) for the same product, where the price differences are not due to differences in the cost of production.

(b) Four conditions necessary for price discrimination

• Monopoly power: the firm must be a price maker with control over supply, otherwise competitors would undercut the higher price.
• Separable markets: the seller must be able to divide buyers into distinct markets or groups (for example by age, location or time of use).
• Different price elasticities of demand: demand must be more elastic in one market than another, so a higher price is charged where demand is inelastic and a lower price where it is elastic.
• No resale (no arbitrage): buyers in the cheap market must be unable to resell to buyers in the dear market, otherwise the price gap would collapse.

(c) Two benefits enjoyed by a discriminating monopolist

• Higher total revenue and profit: by charging each market according to what it will bear, the firm captures more of the consumers' surplus than a single price would allow.
• Ability to serve additional markets: charging a lower price in the elastic (poorer) market lets the firm sell to customers who would otherwise buy nothing, spreading fixed costs and possibly enjoying economies of scale.