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Discriminating Monopolist's Marginal Revenue
A monopolist charges a uniform price if it sets the same price for every unit of output sold. We discussed this case of pure monopoly in the previous post.
A monopolist price discriminates if it charges more than one price for its output.
Perfect price discrimination occurs when the firm can charge a different price for each consumer, with the price exactly equal to the maximum price the consumer will pay (so called consumer's reservation price). By selling each unit of its output at the reservation price for the consumer buying that unit, the perfectly price-discriminating monopoly's marginal revenue is the same as price.
Therefore, perfectly price-discriminating monopolist has a MR that's identical to the demand curve, and it chooses quantity the same as in the case of pure competition market. And we can see on the graph that price-discriminating monopolist (other things being equal) earns more profit than a normal monopolist does.
Posted by mazoo at May 24, 2005 5:14 PM
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Pure Monopolist's Marginal Revenue May 23, 2005Comments
Your article is very informative and helped me further.
Thanks, David
Posted by: davidvogt at February 3, 2007 6:49 PM