Price Determination under Discriminating Monopoly: Meaning, Types, Steps & Examples

MCQs: Price Determination under Discriminating Monopoly

Q1. Price discrimination means:

A) Charging the same price to all consumers

B) Charging different prices to different consumers for the same product

C) Charging different prices due to differences in cost

D) Charging higher prices only in monopoly markets

Answer: B

Explanation: Price discrimination occurs when a monopolist charges different prices in different markets, not because of cost differences but because of differences in demand elasticity.

Q2. Under discriminating monopoly, the total output is decided where:

A) AR = MR

B) MR = 0

C) Aggregate MR = MC

D) Price = MC

Answer: C

Explanation: The monopolist determines total output at the point where the aggregate marginal revenue curve equals marginal cost.

Q3. Which condition is necessary for price discrimination?

A) Perfect competition in the market

B) Consumers can resell the product freely

C) Different markets with different demand elasticities

D) Homogeneous costs in every market

Answer: C

Explanation: Price discrimination requires that different markets have different demand elasticities, otherwise charging different prices would not benefit the monopolist.

Q4. In which type of price discrimination does the monopolist charge each consumer the maximum price they are willing to pay?

A) First-degree

B) Second-degree

C) Third-degree

D) None of these

Answer: A

Explanation: First-degree (or perfect) price discrimination means capturing the entire consumer surplus by charging each consumer their willingness-to-pay.

Q5. Bulk discounts are an example of:

A) First-degree price discrimination

B) Second-degree price discrimination

C) Third-degree price discrimination

D) Price differentiation due to cost differences

Answer: B

Explanation: Second-degree discrimination involves different prices for different quantities or product versions (like bulk discounts).

Q6. Student or senior citizen discounts represent:

A) First-degree price discrimination

B) Second-degree price discrimination

C) Third-degree price discrimination

D) Natural monopoly pricing

Answer: C

Explanation: Third-degree discrimination charges different consumer groups different prices, often based on age, status, or location.

Q7. Which of the following is NOT a condition for price discrimination?

A) The monopolist must have market power

B) There must be different elasticity of demand in each market

C) Arbitrage (resale) must be possible between markets

D) Markets must be separable

Answer: C

Explanation: Arbitrage must be prevented for discrimination to work; otherwise, consumers from low-price markets could resell to high-price markets.

Q8. Why does a monopolist charge a higher price in the less elastic market?

A) Consumers there have fewer substitutes and are less price-sensitive

B) Costs of production are higher

C) Competition is stronger in elastic markets

D) To reduce total revenue

Answer: A

Explanation: Inelastic markets allow higher pricing since consumers are less responsive to price changes.

Q9. Which type of price discrimination is rarest in practice?

A) First-degree

B) Second-degree

C) Third-degree

D) None of the above

Answer: A

Explanation: First-degree price discrimination requires perfect knowledge of each consumer’s willingness-to-pay, which is difficult in real life.

Q10. The main objective of price discrimination is:

A) Maximization of consumer surplus

B) Equalization of prices across markets

C) Profit maximization for the monopolist

D) Encouraging perfect competition

Answer: C

Explanation: By charging different prices in different markets, the monopolist extracts more surplus and maximizes profit.

Q11. The aggregate MR curve is derived by:

A) Vertical summation of demand curves

B) Horizontal summation of marginal revenue curves

C) Horizontal summation of cost curves

D) Vertical summation of average revenue curves

Answer: B

Explanation: Aggregate MR is obtained by horizontally summing the marginal revenue curves of the segmented markets.

Q12. Which of the following best illustrates third-degree price discrimination?

A) A barber charging more for longer hair

B) Electricity tariffs with slabs

C) Movie theatres charging less for students

D) Charging each customer the exact maximum they would pay

Answer: C

Explanation: Third-degree discrimination separates consumers into groups (like students vs. adults) and charges different prices.

Q13. A monopolist sets different prices in two markets. This is possible only when:

A) Costs are different in each market

B) The product is different in each market

C) The elasticity of demand differs in each market

D) Marginal costs are zero

Answer: C

Explanation: Price discrimination requires differences in elasticity of demand across markets.

Q14. The condition for equilibrium in discriminating monopoly is:

A) MC = AR

B) MC = Aggregate MR, and MR1 = MR2 = MC

C) MC = Price in each market

D) AR = MC

Answer: B

Explanation: The monopolist first sets total output at MC = Aggregate MR, then distributes output so that MR in each market equals MC.

Q15. Which of the following is a social benefit of price discrimination?

A) It ensures fairness among consumers

B) It sometimes makes goods affordable to low-income groups

C) It eliminates monopoly power

D) It reduces total output

Answer: B

Explanation: In some cases, price discrimination (like lower textbook prices in developing countries) improves access.

Q16. Which of the following is an example of second-degree price discrimination?

A) Charging foreign tourists more at heritage sites

B) Selling different data packs (1 GB vs. 5 GB) at different prices

C) Charging different prices for the same drug in two countries

D) Charging maximum willingness-to-pay for each consumer

Answer: B

Explanation: Selling at different prices for different quantities or product versions is second-degree discrimination.

Q17. A monopolist earns higher profit with price discrimination because:

A) Costs of production are lower

B) It can convert consumer surplus into producer surplus

C) It reduces output drastically

D) It eliminates competition

Answer: B

Explanation: Price discrimination transfers consumer surplus into monopolist’s profit by charging based on elasticity.

Q18. If resale is possible between markets, price discrimination:

A) Becomes easier

B) Becomes impossible

C) Becomes more profitable

D) Works only in perfect competition

Answer: B

Explanation: If resale occurs, consumers in low-price markets can sell in high-price markets, destroying discrimination.

Q19. Which degree of price discrimination is most commonly practiced in real life?

A) First-degree

B) Second-degree

C) Third-degree

D) None

Answer: C

Explanation: Third-degree discrimination (market segmentation like student discounts, regional pricing) is most common.

Q20. The equilibrium condition in discriminating monopoly ensures that:

A) Price is the same in all markets

B) Marginal revenue is equalized across markets and equals marginal cost

C) Average revenue is maximized

D) Consumer surplus is maximized

Answer: B

Explanation: For maximum profit, the monopolist allocates output so that MR in each market equals MC. #Economics #Monopoly #PriceDiscrimination #MarketStructure #Microeconomics #OutputAndPrice #EconomicTheory #MonopolyPricing #ElasticityOfDemand #ProfitMaximization