Price Discrimination and Output
Will the output in a Discriminating Monopoly be more or less than in a simple monopoly? When the . elasticities of demand in the two markets are different. it will be found that marginal revenue from the sale of a unit of output will be more where the elasticity is higher than where it is low. It will be. therefore. profitable to reduce the output and raise the price where the elasticity is low ana increase the output and lower the price where the elasticity of demand is high. In this way, the marginal revenue in the two markets will be equalised. But will the output on the whole increase. or decrease. or remain the same? Mrs. Robinson gives the answer: “It is possible to establish the fact that total output under discrimination will be greater or less than under simple monopoly according as the more clastic of the demand curves in the separate markets is more or less concave than the less elastic demand curve; and the total output will be the same if the demand curves are straight lines, or in any other case in which the concavities are equal.”? This holds good. however. if marginal cost under simple monopoly and discriminating monopoly is the same. But if marginal cost is Calling, the increase in output in a discriminating monopoly will be accentuated and if the marginal cost is rising, then the decrease in the output will be accentuated. On the whole, it is more likely that discrimination will increase rather than decrease output. A few illustrations will make this point clear. In this case of certain books. the first edition is issued at a high price. The readers. whose marginal utility (intensity of demand) for the book is very high. purchase it at this price, After this edition is exhausted. a second edition is issued which is priced lower than the first. People of lower marginal utility also can now purchase the book. This process may be repeated several times and a very wide sale obtained. People with greater intensity of demand will not wait for cheaper editions. In this way. the monopolist appropriates the major portion of the consumer’s surplus and increases his monopoly revenue to a point otherwise not possible.
[av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,http://economicskey.com/buy-now' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello']