Let's assume Mrs. Jack is a monopolist who faces two different types of markets. The first market (called Market 1) has consumers who are not very responsive towards any change in price level of the product sold by Mrs. Jack compared to consumers in the second market (Market 2). Additionally, Mrs. Jack's monopoly firm does not incur any marginal cost. There is also no possibility of arbitrage in the two markets.

Which of the statements below is TRUE about the third degree price discrimination? Briefly explain your answer.

1. It is better for Mrs. Jack to set up the same price in both markets. 2. Mrs. Jack should charge lower price in Market 1. 3. Mrs. Jack's output will be lower in Market 2.