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A limit price (or limit pricing) is a price, or pricing strategy, where products are sold by a supplier at a price low enough to make it unprofitable for other players to enter the market. It is used by monopolists to discourage entry into a market , and is illegal in many countries. [ 1 ]
[13] A monopoly possesses a substantial amount of market power, however, it is not unlimited. A monopoly is a price maker, not a price taker, meaning that a monopoly has the power to set the market price. [14] The firm in monopoly is the market as it sets its price based on their circumstances of what best suits them.
The bid–ask spread (also bid–offer or bid/ask and buy/sell in the case of a market maker) is the difference between the prices quoted (either by a single market maker or in a limit order book) for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs in some auction
Price maker: Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm. High barriers to entry : Other sellers are unable to enter the market of the monopoly.
The graph below depicts the kinked demand curve hypothesis which was proposed by Paul Sweezy who was an American economist. [29] It is important to note that this graph is a simplistic example of a kinked demand curve. Kinked Demand Curve. Oligopolistic firms are believed to operate within the confines of the kinked demand function.
Economic graphs are presented only in the first quadrant of the Cartesian plane when the variables conceptually can only take on non-negative values (such as the quantity of a product that is produced). Even though the axes refer to numerical variables, specific values are often not introduced if a conceptual point is being made that would ...
Increased demand can be represented on the graph as the curve being shifted to the right. At each price point, a greater quantity is demanded, as from the initial curve D 1 to the new curve D 2 . In the diagram, this raises the equilibrium price from P 1 to the higher P 2 .
Order batching. In order to minimize the cost and to simplify the logistics of a firm, most of the company prefers to accumulate the demand before doing the order. That way, they can benefit from a bigger sale on their order (economy of scale) and they have possibility to order a full truck or container which reduce greatly the transport cost.