Monopoly and price discrimination Managerial Economics
Monopoly and Price
• 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.
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
Barriers of entry
• Legal restrictions
It make difficult for the new firms to attain
license or permission.
• control over key raw materials
• Patent rights
• It is the ability to charge different prices to
different individuals , called price
Need for price discrimination
• increase both output & profit.
• Buying pattern of the individuals will be
• Increase the economic welfare.
Eg: Air tickets, movie tickets,discount coupons
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
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
• Monopolist produce larger output and charge
less price result in larger monopoly profit in
the long run.
Short run Graph