Chapter 63, Problem 1FRQ

a)

To determine

Definition of price discrimination.

Answer to Problem 1FRQ

Different prices are charged by a different consumers for the same good.

Explanation of Solution

When monopolists sell the same good to a different customer for a different price, it is called price discrimination. Monopolists charge different prices to maximize their profit.

Economics Concept Introduction

Introduction:

In the monopoly market, the profit-maximizing output level is determined where MR=MC, and in the perfectly competitive market, the profit-maximizing output level is determined where P=MC

b)

To determine

Reason behind the price -discrimination.

Answer to Problem 1FRQ

Price discrimination takes place to increase the profit that monopolist charge according to a willingness to pay off the consumer.

Explanation of Solution

When monopolists sell the same good to a different customer for a different price, it is called price discrimination. Price discrimination takes place to increase the profit that monopolist charge according to the willingness to pay off the consumer.

Economics Concept Introduction

Introduction:

A monopolist charges a different price from different consumers for the same quantity. Profit-maximizing output and price are determined at the point where the marginal revenue curve intersects the marginal cost curve.

c)

To determine

In which market structures can firm price-discriminate.

Answer to Problem 1FRQ

Firm practice price discrimination in monopoly, oligopoly, or monopolistic market structure because in this market structure firm has some degree of market power which make them able to charge more than one price.

Explanation of Solution

Monopoly, oligopoly, or monopolistic market structures have market power and they can influence the price, which gives them the freedom to charge discriminating prices.

Economics Concept Introduction

Introduction:

Firms practice price discrimination because of increasing their profit. The firm charges different prices with respect to willingness then more output is sold at a low price which resulted in more profit.

d)

To determine

Example of price discrimination.

Answer to Problem 1FRQ

Airline ticket.

Explanation of Solution

Different price for an airline ticket is charged for people flying in a different type of group such as student and non-student for the same service.

Economics Concept Introduction

Introduction:

When monopolists sell the same good to a different customer for a different price, it is called price discrimination.