Objectives of Price Discrimination

Objectives of Price Discrimination
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Published Date:25-07-2017
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Section C General Economics Chapter 4 Unit 2 Under Perfect Competition and Monopoly Ms.Prem J. Bhutani Features of Perfect Competition Price Determination in Perfect Competition Features of Monopoly Price Determination under Monopoly Short-run and Long-run Equilibrium under • Perfect Competition and • Monopoly Price Discrimination Features of Perfect Competition Short-run and Long-run Equilibrium Features • There are large number of buyers and sellers • They are price maker and not price taker • The commodity are homogeneous • The products are identical in nature • Free entry or exist Features • There is a perfect knowledge about the product • Mobility in factors of production • The commodity or the goods are dealt on at a uniform price There is no transportation cost is been involved in perfect competition There is no role for government to interfere in the market Selling cost is absent Market price is given The demand curve of individual firm is horizontal Price equal to MC In the short- run the firm could have an economic profit P=AR=MR The Market price will fall The profit shrinks Input prices may go up Firms try to stay profitable by taking advantage of economies of scale Firms adopt an optimal size Economic profits tend toward zero A single firm producing a homogenous good Differentiated (unique) good No substitutes No new entries allowed The monopoly is a price maker PMR Possibility of a sustained economic profit Monopoly is a Market situation in which there is a Single Seller, there are no Close Substitutes for Commodity it produces, there are Barriers to Entry. - Koutsoyiannis Pure or Absolute Monopoly exists when a Single Firm is the Sole Producer for a Product for which there are no Close Substitutes. - Mc Connel Firm’s Demand Curve also constitutes Industry’s Demand Curve Demand Curve of Monopolist is also Average Revenue (AR) Curve AR Curve & MR Curve are separate from one another MR Curve lies below the AR Curve Slope of MR Curve is TWICE the Slope of AR Curve Y A E 1 (Increase in TR) E = 1 (Maximum TR) L N P E 1 (Decrease in TR) D = AR Zero O Q X MR Output Revenue Conditions of Equilibrium: • The Output which yields him Maximum Total Profit Profit is Maximum when: • Marginal Cost = Marginal Revenue • Marginal Cost Curve cuts Marginal Revenue from below under Increasing Cost condition. Y MC P E AR O Q X Output MR Revenue & Cost Super Normal Profit will be achieved when AR AC Normal Profit will be achieved when AR = AC Losses will be there when AR AC

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