Solution:

price discrimination-harmful or beneficial to society:

• Price discrimination is, however, harmful to society when it leads to a misdistribution of resources between different uses with the result that output, employment, and income are not maximized. Further, it may lead to the diversion of resources from their socially optimal uses.

• It leads to a waste of resources when people are made to pay higher prices for smaller quantities. Even on the international plane when price discrimination takes the form of dumping, it deliberately shatters the economy of the other country by undercutting the foreign producers and forcing them to close their business. Such discrimination is highly undesirable.

• Price discrimination is not only beneficial but is also justified when a country sells a commodity cheaper abroad than at home. If a foreign market is elastic, more will be sold at a lower price.

• It means expansion in output, the use of larger resources in the economy, and more employment and income for the community.

• Price discrimination of this type proves particularly useful if the industry obeys the law of decreasing costs.

• It implies the realization of larger economies of scale, lowering of costs and prices in the home market also.

• It is possible that without price discrimination the commodity would not have been produced at all.

• In that case, had it been imported from abroad, it would have cost the economy more than both in monetary and real terms.

• Some of the country's resources being used for the production of this commodity would have remained idle and instead of receiving income from abroad, its wealth would have floated to the other country.

• Price discrimination may be useful to society if the commodity or service cannot be supplied if price discrimination is not permitted.

• For example the senders of a doctor or Railways. If the monopolist is to charge a single price, he must fix the price at a higher level and this might lower his sales and hence revenue.

• Moreover, the poor classes may be deprived of those services. On the other hand, if he charges so low a price from all as to suit the poor people, the production cost may not be covered.

• If discrimination occurs under conditions of falling average costs, it is beneficial to consumers because it results in larger output for the market.

• This is illustrated in Figure where D is the average revenue the curve of the discriminating monopolist and d/MR is the ordinary demand curve which becomes the MR curve to the discriminator.

• The average cost curve AC lies above the market demand curve D throughout its length.

• So no production is possible at any price on the D curve. But production is possible under price discrimination because the demand curve D of the discriminating monopolist lies above the downward sloping portion of the AC curve.

• Equilibrium is established at E where MC = MR and the output OQ is produced and sold at QP price and the discriminator earn RP profits per unit of output.

• Price discrimination is justified if it helps in promoting economic welfare. Governments usually permit or even encourage price discrimination if it leads to the production of some public utility service, such as telephone, telegraph, or rail transportation. In public utility services, the higher income groups are charged higher prices and the funds so collected may be used to subsidies the goods meant for the poor.

• Price discrimination is also beneficial to society for it helps in reducing inequalities of personal incomes when higher prices or fees are charged from the rich than from the poor.

• In public utility services, the higher price charged from the higher income groups serves as a tool for income redistribution because the government may use these funds to subsidies the lower-income groups. Thus price discrimination helps in promoting social welfare.