The Monopolistic Market Structure-Free-Samples-Myassignmenthelp

Questions: 1.Explain what kind of Average Revenue curve does a Monopoly Firm Faces and why? 2.What do you understand by Discriminatory Monopoly? Bring out the Conditions that enable the Monopoly firm to charge different prices for its Product in different Markets. Answers: 1.The monopolistic market structure is characterized by a single seller and many buyers, with the seller enjoying absolute market power as the product sold by the seller has no close substitutes. The entry and exit of the market is highly restricted. The average revenue in any market is defined as the total revenue earned by the firms by the units of commodities sold. Thus, the average revenue curve can also be defined as the curve showing the revenue per unit of the firms. In case of a monopoly firm, the average revenue curve is a downward sloping curve, which decreases with the increase in the units of the commodities (Rader 2014). This can be shown with the help of the following figure: Figure 1: Average Revenue Curve in Monopoly Market (Source: As created by the author) As can be seen from the above figure, the average revenue curve, in case of a monopoly firm, is the price charged by the monopolist per unit of the commodity or service sold by him, which makes the AR curve similar to the demand curve for the monopolist itself. This is because the monopolist captures the whole of the market at any given level of output. Therefore, to increase the number of units of their goods, which they want to sell, the monopolists have to reduce their price as to attract new customers they need to capture that clientele who have not already bought the concerned commodity. Thus, the average revenue curve or the demand curve in case of a monopolist is downward sloping (Ekelund Jr and Hbert 2013). 2.The monopoly market structure, consisting of one seller and many buyers, allow the sellers to enjoy full market power and price-decisive capabilities. Often this capability leads to an economic phenomenon, which is known as discriminating monopoly. The discriminating behavior is the practice of usually the monopolists to charge different prices from different consumers, depending upon their willingness to pay for the product. In Discriminating Monopoly, the same producer charges higher prices from a sector of his or her clientele and comparatively lower prices from another sector for a commodity whose cost of production is uniform for the producer. The degrees of discrimination, however, vary according to the discriminating power of the monopolists and the nature of demands of the consumer (Solomon, Russell-Bennett and Previte 2012). Figure 2: Price discrimination in monopoly market (Source: As created by the author) As can be seen from the above diagram, the monopolist can charge higher price for the same product in Market A, than in Market B, as in market A, the demand is more inelastic as compared to Market B. This helps the monopolists to increase their revenue. Conditions for Discriminating Monopoly There are several conditions under which the monopolists, which are as follows, can do price discrimination: a) There should be differences in the price elasticity of demand of the consumers in different markets. b) The markets should be geographically distant or there should be at least difference of time. c) The possibility of arbitrage (the tendency of a group of individuals to buy from a place of cheaper price and to sell at a place with higher demand and higher price) should be absent between the markets (Dixon et al. 2012) References Dixon, P.B., Bowles, S., Kendrick, D., Taylor, L. and Roberts, M., 2012.Notes and problems in microeconomic theory(Vol. 15). Elsevier. Ekelund Jr, R.B. and Hbert, R.F., 2013.A history of economic theory and method. Waveland Press. Rader, T., 2014.Theory of microeconomics. Academic Press. Solomon, M., Russell-Bennett, R. and Previte, J., 2012.Consumer behaviour. Pearson Higher Education AU