To understand why a discriminating monopolist charges a higher price in the market where the price elasticity of demand is smaller, we need to analyze the relationship between price elasticity of demand and pricing strategy.

Concept of Price Elasticity of Demand:

• The price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price.
• If the demand is elastic (elasticity > 1), consumers are more responsive to price changes, meaning a small increase in price will lead to a significant reduction in quantity demanded.
• If the demand is inelastic (elasticity < 1), consumers are less responsive to price changes, meaning a price increase will not significantly reduce the quantity demanded.

Monopolist’s Pricing Strategy:

• A discriminating monopolist aims to maximize profit by charging different prices for the same product in different markets.
• Markets with inelastic demand allow the monopolist to charge a higher price since consumers are less sensitive to price increases.
• In contrast, in markets with elastic demand, the monopolist charges a lower price because consumers would significantly reduce their quantity demanded in response to any price increase.

Conclusion:

• Given the above analysis, the monopolist will charge a higher price in the market where the price elasticity of demand is smaller because the demand is more inelastic in that market.

Therefore, the correct option is: demand is smaller.