Question

6.) Explain how the outcome from a perfect price discriminating monopolist will differ from the competitive outcome.

5.) Show how, with perfect price discrimination, the monopolist wil provide the same level of output as would be produced in a perfectly competitve industry.

Answer 1

6. The outcome from a perfect price discriminating monopolist will differ from the competitive outcome as the individual firm in a monopoly is the industry and the industry demand curve is the monopolist demand curve that is the downward sloping.

5. Price discrimination happens when a firm charges a different price to different groups of consumers for an identical good or service. The monopolist will maximize profits where MR=MC. Thus a monopolist will continue to produce output until the MR=MC. In fact for a monopolist, the MR curve will always be below the demand curve. In other words, monopolist will sell the units until and unless the extra revenue exceeds the marginal cost of production.