Price discrimination means, charging different prices from different customers or for different units of the same product. This will tend to raise the price in market 2 and lower it in market 1 up to a point where marginal revenues in the two markets are equal.
Price discrimination also takes place when the seller of a commodity is a monopolist or when rivals enter into an agreement for the sale of the product at different prices to different customers.
His price is determined by his demand curve, once he selects his output level. Monopoly may arise from a number of sources and is of various types: This means that no other firms produce a similar product.
The analysis of the determination of the price, output and profits under monopoly is based on the following assumptions: The entire burden of the tax will be borne by the monopolist himself. Third, a natural monopoly enjoyed by a firm when it supplies the entire market at a lower unit cost due to increasing economies of scale, just as in the supply of electricity, gas, etc.
Control and Regulation of Monopoly: Dumping is international price discrimination in which an exporter firm sells a portion of its output in a foreign market at a very low price and the remaining output at a high price in the home market.
Figure 9 illustrates price-output determination under dumping. It means that more of the product can be sold at a lower price than at a higher price.
This will be the level at which the slopes of TR and TC curves equal. Like the competitive equilibrium, this analysis can also he discussed in terms of the total revenue-total cost approach and the marginal revenue-cost approach. In such a situation, the monopolist would continue to produce so long as he is getting a fair return on his capital investment.
Monopoly may arise from a number of sources and is of various types: Its corresponding marginal revenue curve MR is also downward sloping and lies below it.
Price discrimination is, however, harmful to society when it leads to mal-distribution of resources as between different uses with the result that output, employment and income are not maximised.
If, however, he charges more fee to his rich patients than to the ordinarily, his income is likely to be so high as to induce him to stay in that area. Then there is the fear of substitutes.
It also applies to discrimination based on age, sex, status and income of buyers of services. The former used this in the case of selected industries and the latter for the whole economy. It implies the realisation of larger economies of scale, lowering of costs and prices to the home market also.
Dumping is international price discrimination in which an exporter firm sells a portion of its output in a foreign market at a very low price and the remaining output at a high price in the home market.
Railways charge different rates for the transport of coal and copper. Sources and Types of Monopoly 3. There are two important methods of monopoly power: In any case, his price cannot be below the average variable costs.
Benefits of Price Discrimination and Other Details. It follows that when marginal revenues equal and prices differ in the two markets, price discrimination is possible and profitable. For instance, a rich man cannot become poor for the sake of getting cheap medical facilities.
This is illustrated in Figure The new demand curve facing the monopolist becomes BKD. Or, once he sets the price for his product, his output is determined by what consumers will take at that price.Advantages of a Monopoly. The Monopolies avoids duplications and hence wastage of resources.
Enjoys economics of scale, due to it being the only supplier of the product or service in the market, makes many profits and be used for research and development to maintain their status as a monopoly.
Max Weber contends in his essay, Politics as a Vocation, that the State is a “human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory” (Weber, 77), a definition that political experts cite to this day.
The monopoly firm is a price maker, that means monopoly firm can choose what price to change.
Nevertheless, it still constrained by its demand curve. A rise in price will lower the quantity demanded.
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Monopoly is an economic situation in which only a single seller or producer supplies a commodity or a service. For a monopoly to be effective there must be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market.Download