Discriminating Monopoly - Product Pricing, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

in this screencast we are going to look
at different types of discriminating
monopolies and we're going to compare it
to the pure monopolies so in the pure
monopolies we have a graph that looks
like this where you have your downward
sloping demand curve that equals your
average revenue and price you have a
marginal revenue curve that's less than
your demand curve in order to figure out
the profit maximizing output you go
where Mr equals MC in order to figure
out the price at that quantity you go up
to the demand curve then that gives you
the price that the pyramid oculist will
charge economic profit is price minus
ATC times quantity and so again the
profit maximizing output at that price
minus the ATC times the quantity this
blue area here gives you the economic
profit so another way to look at way
things are sold is with the purely
discriminating monopoly and what happens
here is that this is a seller who can is
selling their product at different
prices to everybody so take for example
like a flea market at a flea market
everybody you go and you negotiate the
price that you want to pay for something
so let's say you and a friend or at the
market and you see a scarf that you like
and you go up to the person and you
negotiate a price and you're willing and
able to pay it here on the demand curve
well that's where you're gonna pay your
friend goes up and they negotiate a
price and they're willing and able to
pay at this place the demand curve the
next person that comes up maybe they're
willing and able to pay at this point on
the demand curve so everybody is willing
and able to pay at different prices and
that's the price that it gets sold to
them at so that's why if you notice the
difference here the demand curve in in
this case is equal to the marginal
revenue as opposed to the demand curve
being less than the marginal revenue
curve being less than the demand curve
and again remember in monopoly the
marginal revenue is left
Dementor because with each additional
unit that is produced you lower the
price not just for that unit but for all
previous units
we're not lowering the price of our
previous units here everybody is being
sold something at a different price so
demand equals there's no revenue in
order to figure out the profit
maximizing output you're still using the
same formula here of M R equals MC and
so what in thing to notice here is that
in the same demand curve and cost curves
that you have on these two graphs the
purely discriminative monopoly will
produce a larger amount than the pure
monopoly so this is a Z that's located
on pure monopoly and it's also
transferred over onto this graph so you
can see the quantity is less of the pure
monopolist than it is of the purely
discriminating monopolist one difference
though is in calculating economic profit
for economic profit you can't use price
- ATC times quantity because all your
prices are different and so in order to
figure out total revenue you have to add
up each of the individual prices that
the product was sold at fighting total
cost is the cost to make the scarf was
the same for everybody and so the per
unit costs are identical you just
multiply that by the quantity that was
sold and that will give you your total
cost so to figure out the economic
profit of a purely discriminating
monopoly you use total revenue minus
total cost and one thing to note here is
look at how much larger the economic
profit is when you can purely
discriminate now even though this is
located in a monopoly chapter the
examples that you find for
discriminating monopolist really apply
to allegories in monopolistic
competition so don't think that it's
just pertaining to monopolist it just so
happens to be located in this section of
your book another way that you can
discriminate is by segmenting the market
and there's different ways that you can
segment them
you can do it based upon age you could
do it based upon criteria that you fit
into it could be different times of the
day so there's just many ways to segment
the market I take for example the train
tickets a person who has a student ID
pays a less of a rate on the train then
a person who doesn't have a student ID
so you're segmenting the market in that
way and when you look at what you when
you look at that on a graph what you do
then is that those that don't have
student ID they would pay a higher price
and so this would be the quantity of
people who are willing and able to pay
at the high price the total revenue that
you get for this group would be the
price times the quantity and that would
give you the total revenue now for those
with the student ID they're going to pay
a lower price and so they are more
willing and able to consume it and so
you have a larger total revenue going on
here and that's within this group and so
this is the group that you see here
where their total revenue would be the
quantity that falls into this segment of
the student IDs times the price that it
is being so that when you look at the
total revenue the entire total revenue
you would then add up these two areas
here in order to figure out the entire
total revenue now when we talk about the
total cost
notice here that instead of having the
e.t.c in the marginal cost curve like
what we're used to seeing they've kind
of made it a little easier here just to
recognize it because the per unit cost
is going to be identical no matter what
quantity you are at so we have this
constant cost industry here that you can
just utilize by having a straight line
going across with your marginal cost
equal in your average total cost either
one is utilized on a test and so you
just want to be
Miller will see both of them so when I'm
looking at my economic profit I have to
take my total revenue and minus the
total cost which is right here in this
box of ATC times quantity so the amount
of economic profit for those that don't
have a student ID would be this green
area here and the economic profit for
those with a student ID would be this
green area here because you're looking
at this part of the market that's been
segmented when you look at the
difference here between the perfectly
discriminating monopolist who is selling
it at each of the individual prices that
people are willing and able and here you
have the cost that it takes to sell it
you can see that the profit with the
purely discriminating monopolist is
larger so if you don't have to segment
the market you can make more of an
economic profit but at the same time as
a way to make more of a profit than a
pure monopoly you can segment the market
into different areas another thing to
think about is consumer surplus with
discriminating monopolies you want to be
able to calculate the consumer surplus
the purely discriminating monopoly
they're signing it at what everybody is
willing and able to buy it at so
therefore there is no consumer surplus
because it's always going to be where it
is hitting the demand curve remember
consumer surplus is when you're willing
and able to pay for something but you
don't have to because the price is lower
when you don't have that here
there's no below the demand curve and
above the price so there is no consumer
surplus for a perfectly discriminating
monopoly however for those that are
segmenting
market you do have consumer surplus
because this again going back to the
tickets for the Train
for those that don't have this dual
nineteen you're willing and able to pay
up here but you don't have to because
you are paying this price right here so
your consumer surplus is going to be
this white triangle that you see there
for that group that has been segmented
as the no student ID for those with the
student ID you're willing and able for
this quantity here that you have you're
willing and able to pay a higher price
but you don't have to because the price
has been set lower so your consumer
surplus is going to be this triangle
here when calculating that