Question

1. Which of the following is required in order for a firm to price discriminate?

a. The firm has price-setting power

b. Product re-sale is possible

c. There are multiple firms in the market

d. A firm knows everyone's willingness to sell

e. All of the above

2. Label each of the following statements as true/false.

a. Economies of scale is a source of monopoly price setting power.

b. In a monopoly market there are high barriers to entry, but in a competitive and oligopoly market there are low barriers to entry.   

c. In a competitive market and an oligopoly market firms sell differentiated products.   

d. At the long-run market equilibrium, firms in monopoly market can earn positive profit and firms in a competitive market must earn zero profit.   

e. A firm in any market will maximize profits by setting quantity such that marginal cost is equal to marginal revenue.   

f. Firms in monopoly and oligopoly markets have price-setting power.  

Answer 1

1. Which of the following is required in order for a firm to price discriminate?

a. The firm has price-setting power

As long as a firm faces a downward-sloping demand curve and thus has some degree of monopoly power(price setter), it may be able to engage in price discrimination. Firms in monopoly, monopolistically competitive, or oligopolistic markets may engage in price discrimination, while firms in perfect competition cannot engage in price discrimination.

A seller can practise price discrimination only when he is selling in different markets which are divided in such a way that product sold by him in the cheaper market cannot be resold in the dearer market.( product cant be resold)

If there are multiple firms in the market then price discrimination is not possible as buyer can buy from someone who is selling at a lower price.

Others willingness to sell has no connection with price discrimination, but buyers willingness to pay is required for !st degree price discrimination.