Price Determination

Good Essays
Price Determination under Monopoly
Monopoly is that market form in which a single producer controls the whole supply of a single commodity which has no close substitute.
From this definition there are two points that must be noted:
(i) Single Producer: There must be only one producer who may be anindividual, a partnership firm or a joint stock company.Thus single firmconstitutes the industry.The distinction between firm and industry disappearsunder conditions of monopoly.
(ii) No Close Substitute: The commodity produced by the producer must have no closely competing substitutes, if he is to be called a monopolist.This ensuresthat there is no rival of the monopolist.Therefore, the cross elasticity ofdemand between the product of the monopolist and the product of any otherproducer must be very low.

PRICE-OUTPUT DETERMINATION UNDER MONOPOLY:
A firm under monopoly faces a downward sloping demand curve or average revenuecurve.Further, in monopoly, since average revenue falls as more units of output are sold,the marginal revenue is less than the average revenue.In other words, under monopolythe MR curve lies below the AR curve.
The Equilibrium level in monopoly is that level of output in which marginal revenueequals marginal cost.The producer will continue producer as long as marginal revenueexceeds the marginal cost.At the point where MR is equal to MC the profit will bemaximum and beyond this point the producer will stop producing.
It can be seen from the diagram that up till OM output, marginal revenue is greater thanmarginal cost, but beyond OM the marginal revenue is less than marginal cost.Therefore, the monopolist will be in equilibrium at output OM where marginal revenue isequal to marginal cost and the profits are the greatest.The corresponding price in thediagram is MP’ or OP.It can be seen from the diagram at output OM, while MP’ is the average revenue, ML is the average cost, therefore, P’L is the profit per unit.Now the total profit is equal to

You May Also Find These Documents Helpful

  • Powerful Essays

    Price Determination

    • 6958 Words
    • 28 Pages

    PRICE DETERMINATION IN A COMPETITIVE MARKET METHOD AND PROBLEM A CASE STUDY OF CONSOLIDATED BREWERIES PLC BY OTTAH SAMUEL O. MATRIC NO: 201042000097 DEPARTMENT OF BUSINESS ADMINISTRATION AND MANAGEMENT. OGUN STATE INSTITUTE OF TECHNOLOGY IGBESA, OGUN STATE IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF NATIONAL DIPLOMA IN BUSINESS ADMINISTRATION AND MANAGEMENT CERTIFICATION This is to certify that this research work was carried out by OTTAH SAMUEL O. with matric number 2010042000097…

    • 6958 Words
    • 28 Pages
    Powerful Essays
  • Better Essays

    Demand, Supply and Market Price Determination Consumer behaviour Utility is the economist’s term for the satisfaction a customer derives from the goods that they buy. Marginal utility is the increase in total utility arising from an increase in consumption by one more. For example, suppose I like eating bananas, and I have already eaten one banana; then the satisfaction I get from consuming a second banana is called by economists the marginal utility. Marginal utility is the utility gain from…

    • 1479 Words
    • 6 Pages
    Better Essays
  • Better Essays

    Introduction There are many factors that affect in share price in DSE. The price of goods determined in market on the basis of Demand and Supply. Share market is also a market. Every Share has a face value and this value vary in market on the basis of demand and supply of share. In the share market everybody are buyer and everybody are seller. One sells a share and another purchase that, in the same way he sells a share and another purchase that. The share market is fully computerized digital market…

    • 11951 Words
    • 48 Pages
    Better Essays
  • Powerful Essays

    Determination

    • 1376 Words
    • 5 Pages

    Determination is a positive emotion that involves persevering towards a difficult goal in spite of obstacles.[1][2] Determination occurs prior to goal attainment and serves to motivate behavior that will help achieve one’s goal. Empirical research suggests that people consider determination to be an emotion; in other words, determination is not just a cognitive state, but rather an affective state.[3] In the psychology literature, researchers have studied determination under other terms, including…

    • 1376 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    explanation Knut Wicksell is known for his theories on interest and prices, and his contribution to the formation of what is now called macroeconomics. Throughout his career, Wicksell was an advocate of the quantity theory. In the book Lectures in Political Economy, volume 2, Wicksell sketched out his version of the quantity theory of money. Before Wicksell, the standard view of the quantity theory was that there is a direct effect on prices from an increase in the money supply. Wicksell focused on the…

    • 1162 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Determination

    • 1030 Words
    • 5 Pages

    Determination In “The Glass Castle” we see many different possibilities pertaining to Maslow’s Hierarchy of Needs. We see the father, Rex and one of the daughters, Maureen, who fall victim to Maslow. Then there’s Jeanette and the mother, Rose Mary who have both seemed to achieve self-actualization regardless of their hardships. Traditionally, Maslow’s Hierarchy is thought to be achieved by working up from the bottom of the pyramid to get to the top. However, in “The Glass Castle” this is not particularly…

    • 1030 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Prices

    • 316 Words
    • 2 Pages

    that cover pricing. In each of the three theories, the outside market influences how goods are sold. Supply and demand: According to this theory, the supply of an item and its demand affect its price. An item that is in high demand will have a high price. An item that has a low demand will have a low price. Market structure is another economic pricing theory. This theory looks at how many outlets in a given area offer the same (or similar) products. Elasticity of demand measures how much someone will…

    • 316 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Price

    • 873 Words
    • 3 Pages

    Price Price which means that the amount of payment for goods and services given in money term. Price also is the total values for consumers exchange for the benefit for their satisfaction by using or having the product or service. Price decisions must focus on product design, promotion costs, distribution and more mixed, forming a valid imploded marketing plan. In arrange the price of a product, marketers must use the pricing strategy. However, use the pricing strategy not only can fascinate more…

    • 873 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Price

    • 364 Words
    • 2 Pages

    Price SK-II is known as the one of the most expensive skin care or beauty brands in Asia and the world. To keep up global brands status and able to compete better than competitors, SK-II has used product line pricing strategy. (UKESSAYS.com n.d.) Most of the normal type of SK-II products are pricing from RM80 until RM150, while the luxury type of SK-II products are pricing from RM150 until RM300. (UKESSAYS.com n.d.) Although SK-II products are mostly expensive, but it works well for the consumers…

    • 364 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Wage Determination

    • 841 Words
    • 4 Pages

    Methods of Wage Determination in India 1. Fixation of wages is a recent phenomenon in India 2. There was no effective machinery until 2nd world war for settlement of disputes for fixation of wages. 3. After independence of India, industrial relations become a major issue and there was phenomena increase in industrial dispute mostly over wages leading to substantial loss of production. 4. Realizing that industrial peace is essential for progress on industrial as well as economic…

    • 841 Words
    • 4 Pages
    Good Essays