Question

1. Discuss how price discriminating monopolists stop products or services leaking from one market to another.
2. Explain why only normal profit may be earned in the long run in perfect competition

Answer 1

A.There is presence of price discrimination monopolist only can occur if condition of no resale and a seperation of markets is possible in the economy.

The condition of no resale means the monopolist can not sell low cost goods sold to the market again in the market. This can occure because of the following condition:

1. Units of the goods demand cannot be transferred from high priced to low priced market.

2. Units of the goods supplied cannot be transferred from low priced to high priced market.

Only in such conditions, leaking in the market is not seen.

B. To understand why in long run perfect competition only normal profits occure, we need to understand short run perfect competition and profit loss situation which translates for long run.