Johnson, Inc., a monopolist, produces a chemical at a constant marginal cost of $12. The chemical is sold in market A and market B where the demand functions are qA=120-pA, and qB=80-pB, respectively. Question: If price discrimination is not allowed, compute the price, the quantity sold, and the consumer surplus in each market
Johnson, Inc., a monopolist, produces a chemical at a constant marginal cost of $12. The chemical is sold in market A and market B where the demand functions are qA=120-pA, and qB=80-pB, respectively.
Question: If
Monopoly is a form of market where one firm is the sole seller. Here is no close substitute available in the market. Here Johnson, Inc., is a monopolist who produces a chemical. And sold it in two different markets. Because it is the case of monopoly so price discrimination can be possible here.
Equilibrium conditions of monopoly:
1 MC = MR
2. MC cuts MR from below
These are the basic equilibrium condition of any market structure. Under perfect competition, firm are price takers and decide price will be equal to marginal cost because there are many firms in the perfect competition. But under monopoly, monopolist try to charge price must be greater than marginal cost.
P > MC
He will try to charge more price because he is the sole seller.
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