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MONOPOLY
The Word Monopoly is a Latin Term. ‘Mono’
means Single and ‘Poly’ means to control,
implying one Seller.
According To Baumol ,
“ A pure Monopoly is defined as the firm that is also
an industry. It is the only supplier of some particular
commodity for which there exist no close substitutes.”
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True monopolies generally exist in
government controlled markets.
Ex. : Indian railways, Nuclear
Energy related Minerals (Uranium)
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FEATURES OR ASSUMPTIONS OF MONOPOLY
One seller and large number of Buyers.
No close Substitutes.
Price Discrimination.
Demand
Demand
0 Quantity of 0 Quantity of
Output Output 8
DEMAND AND REVENUE UNDER
MONOPOLY
Y
A
Demand curve of the
monopolist is also average E > 1 Increase In TR
Revenue
E=1 (TR Maximum)
L
slopes downward. It P
N
means if the monopolist E<1 (Decrease inTR)
fixes high price, the
demand will shrink. D = Average Revenue
O Marginal revenue X
Q OUTPUT
2. Normal Profit
3. Minimum Loss
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SUPER NORMAL PROFIT
In This Figure ,The Y
Monopolist is in MC
equilibrium at point E .
AC
Because at this point
A
MC=MR . C
D B
The Monopolist
Produces OM Units & E
sell it at AM price AR
Thus in this Situation
the super normal profit
MR
of the monopolist will be OUTPUT X
O M 12
ABCD
NORMAL PROFIT
In This Figure ,The Firm is Y MC
in equilibrium at point E .
Where MC=MR & OM is
the equilibrium output . AC
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Price discrimination occurs when
a business charges a different
price to different groups of
consumers for the same good or
service, for reasons not associated
with costs.
PRICE DISCRIMINATION
TYPES OF PRICE DISCRIMINATION
related business).
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2nd Degree Price Discrimination
In this type of discrimination the companies are actually not able to
differentiate between the different types of consumers. This practice creates
a schedule of declining prices for different quantities. Using this strategy the
company can extract some of the consumer surplus without knowing much
about the individual consumer. The consumer chooses the amount of
product they wish to consume with the posted prices, and this allows
consumers to differentiate themselves according to preference. This type of
discrimination can easily be seen in the bulk purchases of large consumers
like Walmart, who in turn pass the savings onto the eventual consumer.
This can also be seen in quantity discounts, the more you purchase the
more you save. A family pack of soap powder or biscuits tends to cost less
per kg than smaller packs. This of course discriminates against people
living alone, often pensioners and students. In some supermarkets the price
per kg of product is listed, which helps the customer by providing
information on which to base decisions on.
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Examples of 2nd degree price discriminators:
Electric utilities, cable companies, water & sewage companies, trash collection
3rd Degree Price Discrimination
This type of price discimination, is based around the idea that
the firm sets prices that will accomodate the consumer. The
firms know broad demographics about the particular types of
consumers they will supply, and charge prices such that
everyone will be able to consume the product. In order for this
form of discrimination to work the firm must be able to predict
the elasticity of demand in various consumers. This type of
discrimination can be seen in the movie theater business.
Student and senior discounts are given because these groups
of consumers have more elastic price elasticity of demand. It is
because of this discrimination that the firm is able to extract the
consumer surplus of those who might not otherwise pay the
standard rate. Third degree price discrimination relies on the
firm being able to separate the segments. If separation of
segments is not possible then the product can be transferred.
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FIND PRICE DISCRIMINATION HERE!
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