Monopoly 2. Price Discrimination Types of Price Discrimination Not related to Unit Cost of Production Most Common.

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Presentation transcript:

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