Question

Hi can someone answer this for me please in detail, was answered before but wrong and not explained properly thank you so much

Topic 3 (a) "The monopolist's dilemma is that the revenue it gets for an extra unit of output is less than the price at which he sells." Explain this statement and using a diagram show that price discrimination offers the monopolist a way out of this dilemma. 3. 3A) [40% mark] (b) Explain the difference between 3id and 2nd degree price discrimination, and the conditions that make these possible. Does price discrimination lead to greater market efficiency? [35% mark]

Answer 1

3a) A monopolists marginal revenue is always less than the price of the good.Marginal revenue is the amount of revenue a firm gets from the sale of its additional unit.For a monopoly there is price effect ie the monopolist should reduce price to sell more.So the Marginal revenue for additional units sold is lower than the price because it gets less revenue for the previous units sold as well . This is because the monopolist has to reduce price for all units in the same amount.

Price discrimination means consumers are charged differently to increase the profit of the monopolist.Instead of charging a single price for all his products , the consumes can be charged different prices which will increase the revenue of the monopolist. If there were different markets for all units of his product ie perfect discrimination, the marginal revenue for each unit will be equal to the selling price of the product.

b)Second degree price discrimination is generally practiced in markets with many buyers and same price applies to all . Only the monopolist can charge different price to a small section whose tastes and preferences as well as incomes differ. Eg public utility pricing.

Third degree price discrimination means monopolist divides the customers in two or more sections and charges different prices from them as each class is a different market . Eg Dress circle seats in cinema hall.

Conditions are no possibility of transferring goods from one market to another,two markets have large distance between them, consumers are not aware of market prices in different markets, permitted by government rules ,geographical situation sa a monopolist may charge different prices from domestic and foreign consumers.etc

Price discrimination makes it possible for a firm to sell more output . The firm thus utilizes all its factors of production efficiently.The firm becomes efficient productively.

MC ATO Quante Me