Chapter 9: Problem 9

For a monopolist to practice effective price discrimination, one necessary condition is a. identical demand curves among groups of buyers. b. differences in the price elasticity of demand among groups of buyers. c. a homogeneous product. d. none of the above.

Short Answer

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The necessary condition for a monopolist to practice effective price discrimination is Option B: differences in the price elasticity of demand among groups of buyers. This allows the monopolist to charge higher prices to consumers with a lower price elasticity of demand and lower prices to consumers with a higher price elasticity of demand.

Step by step solution

Option A: Identical demand curves among groups of buyers.

Price discrimination requires the monopolist to charge different prices for the same good or service to different groups of buyers. If the demand curves are identical among groups, the monopolist will not be able to effectively practice price discrimination as all consumers will have the same willingness to pay for the product.

Option B: Differences in the price elasticity of demand among groups of buyers.

For effective price discrimination, the monopolist needs to recognize that different groups of buyers have different price sensitivities. This results from differences in the price elasticity of demand among these groups, allowing the monopolist to charge higher prices to consumers with a lower price elasticity of demand (inelastic demand) and lower prices to consumers with a higher price elasticity of demand (elastic demand).

Option C: A homogeneous product.

If the product is homogeneous, all consumers receive the same product regardless of the price they pay. While this may create an environment where monopolists could practice price discrimination, it is not a necessary condition, as price discrimination can also be done for differentiated products.

Option D: None of the above.

We have to determine if any of the previous options are a necessary condition for a monopolist to practice effective price discrimination. After analyzing all the options, it becomes clear that Option B: differences in the price elasticity of demand among groups of buyers, is the necessary condition for a monopolist to practice effective price discrimination.

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