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- Exist when the same product is sold at different prices to different buyers.
The conditions necessary which must be fulfilled for the implementation of price discrimination are:
(i) The market must be divided into sub market
(ii) Different submarkets must have different prices elasticities.
(iii) There must be effective separation of sub markets, so that no reselling can take place from a low price market to a high price market.. This condition explains why price discrimination is easier to apply with commodities like electricity or gas or services e.g. Doctor which are consumed by the buyer and cannot be resold.
- The reason for a monopolist to apply price discrimination is to obtain an increase in his total revenue and his profit. By selling the quantity defined by the equation of his marginal cost and marginal revenue at different prices the monopolist realize higher total revenue and hence higher profits as compared with the revenue he would receive by charging a uniform price. Taking a simple case of a monopolist who sells his product at two different prices In, the first market profit is maximized when, MR1 =MC. In the second market profit is maximized when MR2 =MC. Clearly the total profit is maximized when the monopolist equates the common MC to individual revenues.
MC=MR1=MR2
* If MR is one market were larger, the monopolist would sell more in that market and less in the other, until the above condition is restored.
Wilfykil answered the question on March 22, 2019 at 05:29
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