Monopoly and price discrimination Managerial Economics

Monopoly and price discrimination Managerial Economics

• 1.
  Monopoly and Price Discrimination
• 2.
  Monopoly • Monopoly isa market situation where there is only one seller but different customers. • The cross elasticity of demand for a monopoly is either zero or negative. • Monopolized industry is a single firm industry, equilibrium of the monopoly firm signifies the equilibrium of the industry.
• 3.
  Features of monopoly •A single seller • Unique product (no close substituites) • Price maker Firm ( Total control over the quantity supplied) • Entry of new firms is restricted
• 4.
  Barriers of entry •Legal restrictions It make difficult for the new firms to attain license or permission. • control over key raw materials • Patent rights
• 5.
  Price Discrimination • Itis the ability to charge different prices to different individuals , called price discrimination.
• 6.
  Need for pricediscrimination • increase both output & profit. • Buying pattern of the individuals will be different • Increase the economic welfare. Eg: Air tickets, movie tickets,discount coupons etc.
• 7.
  Pricing under shortrun • Price and output based on revenue and cost.  AR faces a downward slopping demand curve in monopoly firm. Profit maximises monopoly chooses price and output at MR= MC.  E is the profit maximising output for the firm OM.
• 8.
  Pricing under longrun • Monopolist get an oppurtunity to expand its firm for long run profits. • AR and MR curve shows the market demand. • Output and price determines monopolist long run profits. • Monopolist produce larger output and charge less price result in larger monopoly profit in the long run.
• 9.
  Short run Graph Costand revenue MC AC Q P R S E 0 MR M output AR
• 10.
  Long run graph
• 11.
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