WAEC Economics 2016 Theory — Question 7

Model answer

(a) Discriminating monopolist: This is a monopolist which charges different prices in different markets. The monopolist achieves this by segregating the market into different levels of consumers. (b) Conditions necessary to practice price discrimination: (i) Market imperfection: Before discrimination can be possible there must be some imperfection in the market such as preferential treatment, imperfect information about the market situation etc. (ii) Geographical difference of the consumers: The consumers must not be located in the same geography. With this, discrimination is possible. (iii) Ignorance of the buyers: Also, the buyers' ignorance can make price discrimination possible. (iv) Artificial difference in demands: Also, the consumers can make some artificial demands which can make the monopolist to capitalize on it without offering them any better goods than other consumers. (c) Benefits enjoyed by discriminating monopolist: (i) Higher profit: The monopolist can charge higher price in some markets, at this will result in higher profit for him. (ii) It makes the goods more competitive because those buying at lower price will not want those that buy at higher prices to send them to extinction.