6. For each of the following statements, indicate whether it is true or false an

Question

6. For each of the following statements, indicate whether it is true or false and explain. A monopolist who is able to practice third-degree price discrimination will make greater profits than a monopolist who is able to practice first-degree price discrimination. a. b. A profit-maximizing monopolist is able to practice third-degree price discrimination. If he charges pi in market 1 and p2 in market 2, where pi > p2, the quantity sold in market 1 must be smaller than the quantity sold in market 2 c. The local grocery store prices a 12-pack of Pepsi at S4.99 but also promotes a special "buy four 12-packs of Pepsi for S1199" deal. This is an example of second degree price discrimination.

Explanation / Answer

1. This is false. Monopoly with the first degree price dicrimination will make highest profit because this will enable monopolist to charge every consumer according to his/her marginal cost.

2. False. This is not necessarily true. This will depend upon elasticity of demand in the two markets.

3. True. This is an example of second degree price discrimination as the monopolist is giving quantity based discounts.

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