PRICE

DISCRIMINATION
& DETERMINATION
 TYPES OF MARKET

PERFECT
IMPERFECT MONOPOLY
COMPETITION
COMPETITION

MONOPOLISTIC OLIGOPOLY
 MONOPOLY PRICE DETERMINATION

 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.
FEATURES OR ASSUMPTION:-
1.one seller and large number of buyers.
2.Monopoly is also an industry.
3. Restriction on entry of the new firms.
4.No close substitutes.
5.Price maker.
6.Price discrimination.
7.Absence of supply curve.
Determination of Price
 Under monopoly, price and equilibrium are
determined by two different approaches :-

 1. Total revenue and total cost analysis.

 2. Marginal revenue and Marginal Cost

analysis.
 1. TOTAL REVENUE
ANALYSIS
 This approach states
that amount of output at which a monopolist
earns maximum profit
will constitute his
equilibrium situation.
Shown in diagram:-
2. MARGINAL REVENUE AND
MARGIANL COST analysis
 Acc to this ,a monopolist will be in equilibrium when
two conditions are fullfilled ,i.e.:-
 1) MC = MR (marginal revenue = marginal cost)
 2)MC curve cuts MR curve from below.

A monopolist earns maxi. Profit when he is in

equilibrium.
Price determination studied in two periods- short run
and long-run
SHORT RUN STUDY
 A monopolist equilibrium may face 3 situation
in short run-
 1)Super Normal Profit (AR>AC)
2)Normal profit (AC = AR)
3) LOSS (AR<AC)
LONG-RUN STUDY
 In long-run only SUPER NORMAL PROFIT
EXISTS.
 PRICE DISCRIMINATION
 Price discrimination refers strictly to the
practice by a seller to charging different prices
from different buyer for the same good.
 Price discrimination exists when the
same product is sold at different prices to
different buyers.
 Discriminatory monopoly means charging
different rates from different customers for the
same good or service.
 KINDS OF Discriminating
Monopoly :-

 1) Personal Price Discrimination.

 2)GEOGRAPHICAL Price
Discrimination.

 3)Price Discrimination according

to use.
 CONDITIONS of price
discrimination

 Existence of monopoly
 Separate market
 diff. in elasticity of demand
 Production of commodity to order
 Legal sanction
 Product differentiation
 Behaviour of the consumers
Equilibrium under
discriminating monopoly
 In order to get maximum profit,
monopolistmust fullfil the following two
condition:-
 1)must get same marginal revenue in both
markets.
MR1 = MR2
 2)equality between MR and MC.

MR1 = MR2 = MC
PRICE determination under
discriminating monopoly
DEGREE of price
discrimination
 1)discrimination of first degree.

 2)discrimination of Second degree.

 3)discrimination of Third degree.

EFFECTS of Price
Discrimination
 Beneficial effect .
 Public utility service .
 Beneficial to the Poor .
 Full utilisation of Resources .

****HARMFULL effect
1) No proper use of factors of production.
2) Less Production.
 COMPARISON
PROPERTY MONOPOLY PERFECT
COMPETITION
UTILIZATION Of output is deliberately Optimum level of output
resource restricted
OUTPUT MORE LESS than monopoly

Goal Profit maximization Earn profit

Regarding May or May not Homogeneous

production Homogeneous
Regarding Entry RESTRICT-IONS NO restrictions

Sellers-buyers limited Large number

Demand Curve Perfectly elastic AR,MR separate from