Hi k9queen!!!!
a)suppose we had a monopolist who could engage in perfect price
discrimination, what would the price and MR relationship be?
Perfect price discrimination or First degree price discrimination is
done by charging along the MV curve (MV = P); in other words each
buyer is charged at the maximum amount that they are willing to pay.
In consequence, all consumer surplus will be catched by the seller.
The main facts of this price discrimination are:
MV = P ;
Since the monopolist set the price to the buyers at their MV, then:
MR = MV ;then the relationship between price and MR is:
MR = P.
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b)What output level does a monopolist produce? Is it efficient?
We can rewrite the chart:
QUANTITY PRICE TOTAL REVENUE MR
Q MV=P TR MR=MV=P
----------------------------------------------
1 38 38 38
2 36 88 36
3 34 122 34
4 32 154 32
5 30 184 30
6 28 212 28
7 26 238 26
8 24 262 24
9 22 284 22
10 20 304 20
11 18 322 18
12 16 338 16
13 14 352 14
14 12 364 12
15 10 374 10
16 8 382 8
17 6 388 6
18 4 392 4
19 2 394 2
Output level determination:
In this case the monopolist use the same rule: he will produce where
marginal revenue (MR) equals marginal cost (MC), provided that AR
>=AC.
MC is constant. Then: MC = AC = $10 .
AR = TR/Q.
So the output level will be:
Q = 15 (for this Q, AR = $154/15 >= $10 = AC).
Market Efficiency:
The main condition for efficient market outcome is MV = MC ; in
effect, if MV > MC, then additional resources are more valuable in
this use than elsewhere; if MV < MC, the resources are more valuable
in next best alternative use.
In this case the monopolist are charging to the buyers at their MV,
then:
MR = MV = P .
Since the output level is at MR = MC, we will have in such situation
that MV = MC, then the production under perfect price discrimination
(in the optimal output level) is efficient.
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For more reference about this topic (Perfect Price discrimination)
please visit the following page:
"First Degree Price Discrimination":
http://econman.uhome.net/A-level/Price%20Searching/Price%20discrimination/pDiscrimination_2.htm
I hope this helps you. Feel free to request for any clarification
needed.
Best regards.
livioflores-ga |
