Question

In: Economics

Are monopolies indefinitely bad for society? As a price setter, how will a monopolist determine price?...

Are monopolies indefinitely bad for society? As a price setter, how will a monopolist determine price? Provide specific examples of price discrimination that you have encountered. Do you believe price discrimination is fair?

Solutions

Expert Solution

A monopoly market system is a market in which quantity supply is done by one individual firm or by the company and so a monopolist control price of goods. So monopolies indefinitely are bad for society because monopolist will charge a very high price and no one can stop the monopolist, therefore it is bad for society for a long period of time.

As a price setter, a monopolist will determine price by the condition;

MR=MC

This is a profit-maximizing condition of the monopolist.

Yes, I have seen the price discrimination in my life the price charged by the firms is different for people in the city and on the highway. The price of chips is different on the highway shops and it is different in the city. The price charged on the highway is greater than the price charged in the city for the same packet of chips.

No, the price discrimination is not fair because the MRP includes the tax and benefit to the retailers, even then the shopkeeper of the highway charges higher price compared to the shopkeeper of the city. It hurts the consumers very much because it reduces the consumer surplus to zero and even more than zero.


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