Monopoly 2

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Monopoly 2. Price Discrimination. Types of Price Discrimination. Not related to Unit Cost of Production. Most Common. Price Discrimination by a Monopoly - Conditions.
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Monopoly 2Price DiscriminationTypes of Price DiscriminationNot related to Unit Cost of ProductionMost CommonPrice Discrimination by a Monopoly - ConditionsDeregulation = The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industryLong Run Equilibrium Price Discriminating Monopoly (operating as a monopolist in the domestic market and facing perfect competition in the foreign export market)MCPACP1BAP2D/AR/MR (Abroad)MR (Home)D/AR (Home)0QQbQaExplanation 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 Qbto 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 Qaat a price of P2as the MR abroad is now greater than the MR at home.
  • Explanation of Long Run Equilibrium of Monopoly
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