Monopoly and price discrimination Managerial Economics

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Monopoly and price discrimination Managerial Economics

  1. 1. Monopoly and Price Discrimination
  2. 2. Monopoly • Monopoly is a 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. 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. 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. 5. Price Discrimination • It is the ability to charge different prices to different individuals , called price discrimination.
  6. 6. Need for price discrimination • 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. 7. Pricing under short run • 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. 8. Pricing under long run • 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. 9. Short run Graph Cost and revenue MC AC Q P R S E 0 MR M output AR
  10. 10. Long run graph
  11. 11. THANK YOU

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