Question

Which of the following statements about third-degree price discrimination is correct?

A. Successful third-degree price discrimination does not require that different groups of consumers have different demand elasticities.
B. Successful third-degree price discrimination will not provide the firm with more total profits than if it does not discriminate.
C. Successful third-degree price discrimination does not require that the producer separates customers into easily identifiable groups.
D. Successful third-degree price discrimination will generally result in a greater level of output than would be the case under a single-price pure monopoly.

Answer 1

The correct statement about third-degree price discrimination is that it will generally result in a greater level of output compared to a single-price monopoly, by charging different prices to different groups based on demand elasticities.

Step-by-step explanation:

Among the given statements about third-degree price discrimination, the correct one is that successful third-degree price discrimination will generally result in a greater level of output than would be the case under a single-price pure monopoly. This is because third-degree price discrimination allows the firm to charge different prices to different customer groups based on their respective elasticities of demand. It effectively tailors prices to segments of the market with differing demands, maximizing profits by extracting consumer surplus.

For successful third-degree price discrimination, it is crucial that different groups of consumers have different demand elasticities and that the producer can separate these customers into easily identifiable groups. If a monopolist can perfectly discriminate prices, it would produce a level of output akin to that of a perfectly competitive firm, effectively capturing all of the consumer surplus and earning maximum profits.

Successful third-degree price discrimination does not require that different groups of consumers have different demand elasticities.

For example, in movie theaters, for certain showtimes, tickets may be cheaper for students or senior citizens. This is an example of third-degree price discrimination, where different groups of consumers are charged different prices based on their age, but they have similar demand elasticities.