<p>I came across a True/False question in my economics problem set:</p>

<blockquote>
  <p>Is the following statement true or false?<br>
  "A monopolist can practice
  third-degree price discrimination in the two markets it serves.
  Quantity demanded at any positive price is always higher in market 1
  than in market 2. Therefore, when the monopolist profit maximizes, it
  will certainly charge a higher price in market 1 than in market 2."</p>
</blockquote>

<p>The answer is false. However, I do not understand why it is false. </p>

<p>I considered two cases, case 1 where the monopolist charges both markets a uniform price. If the monopolist practices price discrimination, profits will increase for the monopolist, and price charged in market 1 will be higher than market 2. </p>

<p>Case 2 is where only market 1 (since it is the "strong" market) is served under uniform pricing. By price discriminating, monopolist will also serve market 2 as it generates profit, and price in market 1 is higher than in market 2. </p>

<p>Why then is the statement false? Am I missing out another case? </p>

<p>Any help is greatly appreciated! Thank you. </p>

<microeconomics><monopoly><industrial-organisation><price-discrimination>
3rd Degree Price Discrimination
kyusj
# 3rd Degree Price Discrimination

(Asked by: username_0 on 2019-03-01)

I came across a True/False question in my economics problem set:

> Is the following statement true or false?  
> "A monopolist can practice
> third-degree price discrimination in the two markets it serves.
> Quantity demanded at any positive price is always higher in market 1
> than in market 2. Therefore, when the monopolist profit maximizes, it
> will certainly charge a higher price in market 1 than in market 2."

The answer is false. However, I do not understand why it is false.

I considered two cases, case 1 where the monopolist charges both markets a uniform price. If the monopolist practices price discrimination, profits will increase for the monopolist, and price charged in market 1 will be higher than market 2.

Case 2 is where only market 1 (since it is the "strong" market) is served under uniform pricing. By price discriminating, monopolist will also serve market 2 as it generates profit, and price in market 1 is higher than in market 2.

Why then is the statement false? Am I missing out another case?

Any help is greatly appreciated! Thank you.

**Tags:** microeconomics, monopoly, industrial-organisation, price-discrimination


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## 0 answers

