Answer to Question #131578 in Microeconomics for sahar

Question

I. Compare perfect competition and monopoly.
II. What is meant by price discrimination? Explain the condition under which price discrimination is feasible?

Answer 1

a) Compare perfect competition and monopoly.

I.             In a perfect competition market, there are large number of buyers and sellers and no party can alter the market price while in a monopoly, there is only one seller and has to power to alter market prices as all buyers depend on him only.

II.           In a perfect competition market, supply is from many suppliers while in a monopoly, supply is only from one seller.

III.          Demand is perfectly elastic in a perfect competition market while it is inelastic in a monopoly.

IV.         Both markets deal in homogeneous products.

V.           In perfect competition, output is large while in a monopoly output is low.

b) What is meant by price discrimination? Explain the condition under which price discrimination is feasible?

Price discrimination is whereby a seller sells his/her product or service to different buyers at different prices.

Conditions for price discrimination to be feasible include:

I.                    Seller has control over supply of his product such as the case in monopoly market.

II.                  Seller has ability to divide the market into two segments.

III.                Price elasticity of product must be different in different markets.

IV.               Buyers in the low-priced markets do not have the ability to sell the commodity t buyers in high-priced markets.