pharaphrase and summarize this please! An example (others possible) where welfar
ID: 1104920 • Letter: P
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pharaphrase and summarize this please!
An example (others possible) where welfare is lower under a one-price monopoly compared to a multimarket price discriminating monopoly: Group I Group 2 Total CD MR MIC = 0 In this example, there are two types of consumers with different demand curves, and MC = 0 for simplicity. The single price monopoly sets quantity in the Total market where MR = MC = 0, and it chooses its price from the demand curve at that quantity. This example is constructed seo that when the single price monopoly maximizes profits, it sets a price P2 that is too high for any consumer in group 1 to buy anything. A multimarket price discriminating monopoly can sell to group 1 at a lower price PI, while maintaining its price and quantity for group 2. Thus, consumer welfare rises by A+B under the multimarket price discriminating monopoly. Producer surplus also rises by selling to group 1 at a lower price, so total welfare rises with the multimarket price discriminating monopolyExplanation / Answer
In the case of existence of monopoly, benefits for both the consumers and the producer are comparatively higher when the monopolist applies price discrimination by segregating the market into different consumer groups.
If the monopolist takes the whole market as one and applies the profit maximization rule of marginal revenue (MR) being equal to the marginal cost (MC), then the price is likely to be very high for a certain group of people whose welfare will be negatively affected as they cannot afford to purchase the good.
By applying price discrimination the monopolist can charge a comparatively lower price from those with lower purchasing power while charging higher from those having comparatively higher purchasing power.
In this way consumer welfare will increase as now those who could not earlier afford the good can purchase it. Similarly, producer welfare will also be higher as by selling the good to larger number of people the monopolist can now earn higher revenues and thereby higher profit.
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