Monopoly 2
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Transcript of Monopoly 2
Monopoly 2
Price Discrimination
Types of Price Discrimination
Not related to Unit Cost of Production
Most Common
Price Discrimination by a Monopoly - Conditions
Deregulation = The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry
Long Run Equilibrium Price Discriminating Monopoly (operating as a monopolist in the domestic market and facing perfect competition in the foreign export market)
AC
MC
D/AR/MR (Abroad)
D/AR (Home)MR (Home)
A
QaQb
P
Q
B
0
P1
P2
Explanation of Diagram
• Key Rule for Profit Maximisation for a Price Discriminating Monopolist = MC = MR (home) = MR (abroad) – at point A
• The firm aims to maximise profits and will produce in total Qa to sell in both the domestic and export market.
• The firm must then decide how much it should sell on the home market and how much should it sell abroad in order to maximise profits.
• It will provide 0 to Qb to sell at home at a price of P1 as the MR up to point B is greater selling at home than abroad.
• It will then switch at point B (where MR home = MR abroad) to selling the remainder of its output abroad, between Qb and Qa at a price of P2 as the MR abroad is now greater than the MR at home.
• Explanation of Long Run Equilibrium of Monopoly