ARBUS301 Lecture Notes - Lecture 11: Oligopoly, Monopolistic Competition, Demand Curve

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Monopoly: price discrimination
This suggests that different prices are charged to different groups of buyers
for the commodity supplied by the monopolist
Different prices charged by the same commodity
Condition
1. Buyers are formed into groups according to differences in elasticity of
demand attributed to the differences in: income, preferences and/or
availability of substitutes (there are no perfect substitutes that the
monopolist can buy)
2. Only the monopolist can allocate output of commodity between two
different groups of buyers
consider
two groups of buyers, G1 + G2…
demand for group 1 – Dg1
demand for group 2 – Dg2
monopoly demand – DM is composed of Dg1 + Dg2
MR for group 1 – MRg1
MR for group 2 - MRg2
Marginal revenue for a monopoly – MRm = MRg1 + MRg2
MC for monopolist – MCm
Behaviour rule
The monopolist maximizes profits by allocating output between groups of
buyers such that ME is equal across groups of buyers 1
Conclusion
The most elastic the demand, the lower the price
Dg1 – more elastic than Dg2 therefore Pg1 < Pg2
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