Single Price Monopoly Case Study

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Recommended: Distinguish between monopolistic competition and oligopoly

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Name: Benjamin Kusi
Question: “A single-price monopoly will always charge a price that is on the elastic range of the demand for the monopoly’s output.” Discuss using relevant diagrams or algebra.”

According to TIMOTHY J. PERRI, he explains that a monopoly is a firm who is the sole seller of its product, and where there are no close substitutes. (WINTER 1984) Monopoly arises as a result of many factors coming to play into the existence of a monopoly. Some of these factors are the location and owning of a key resource by a firm, an exclusive right given to a firm by a government to produce a certain kind of good, and a very high cost of producing a good and among others. As a result of there being a monopoly, it gives …show more content…

Some monopoly firms practice price discrimination and others do not. Price discrimination is a pricing strategy that involves selling the same good or product to different people at different prices. This means that the seller charges each buyer of his or her product, the highest amount that the buyer is willing and able to pay. With respect to a single price monopoly, Chester S. Spatt explains that, the producer sells each unit of its output (product or goods) at the same price to all of its customers.(Apr., 1983). As such, there are factors that makes a single-price monopoly always charge a price that is on the elastic range of its demand for its output. Some of these factors …show more content…

The market supply curve in a perfect competitive market is the horizontal summation of all the individual firm’s marginal cost. This mathematically means that S = MC. And this curve represents the monopoly’s marginal cost curve. Equilibrium in perfect competition occurs where the quantity demanded of a good is equal to the quantity supplied at quantity (QC ) and price (PC.) Whereas equilibrium output for a monopoly, QM, occurs where marginal revenue equals marginal cost, MR = MC. And its price, PM, occurs on the demand curve at the profit-maximizing quantity. Because marginal revenue is less than price at each output level, QM < QC and PM > PC. Comparing this to that of a perfect competitive market, monopoly limits its output and charges a greater price that is on the elastic range of demand as shown in the diagram

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