Question

1. Show (graphically) how MC pricing can result in losses for the monopoly.

2. What conditions are necessary for a firm to price discriminate?

3. Can a firm in a competitive market discriminate among buyers? Can a firm in a monopolistically competitive market?

4. Compare and contrast the characteristics of a competitive market, monopoly, monopolistic competition, and oligopoly.

Answer 1

2) conditions that are necessary for price discrimination are-

a) the elasticity of demand for the product in the market. if the elasticity is less in one market than other price discrimination is possible.

b) the geographical distance. for price discriminatin, two markets are to be devided geographically and should be distanced from each other.

c)articificial difference between goods, consumer ignorance, government regulations are some other conditions of price discrimination.

3) a firm in a competitive market cannot discriminate price because firm is not a price maker rather its a price taker in the market, there perfect knpwledge about the market prevails so it is not possible to price discriminate. in monopolistically competitive market also price discrimination is not possible because the products have very close substitute available in the market.

4) competitive market is a situation with the characteristics of perfect knowledge about the market, free entry and exit to the market, no government intervention, price taking behaviour, many buyer and sellers etc. in case of monopoly there is only one firm making the product and many consumer, consumer exploitation, price discrimination, price making behaviour, economic surplus etc are the characteristics. monopolistic competition is a mix of perfect competition and monopoly. there are large no. of buyers and sellers present, buyers have little control over the market, product differentisation with close substitute, free entry and free exit are the characteristic of this market. in case of oligopoly there are few firms in the market but many buyers. firms are interdependent with respect to pricing and quantity decission here. all these forms of market are diffeent from each other but have little similarites with each other in some respect. like monopolistic market structure has many characteristic of perfect cpmpetition and oligopoly market is similar to monpoly in some extent when there is noproduct differentition in the market.