Search results
Results from the WOW.Com Content Network
Price discrimination is thus very common in services where resale is not possible; an example is student discounts at museums: Students may get lower prices than others, but do not become resellers, because the service is consumed at point of sale. Another example of price discrimination is intellectual property, enforced by law and by ...
In microeconomics, a monopoly price is set by a monopoly. [1] [2] A monopoly occurs when a firm lacks any viable competition and is the sole producer of the industry's product. [1] [2] Because a monopoly faces no competition, it has absolute market power and can set a price above the firm's marginal cost. [1] [2]
Relatively inelastic supply: This is when the E s formula gives a result between zero and one, meaning that when there is a change in price, the percentage change in supply is lower than the percentage change in price. For example, if a product costs $1 and then increases to $1.10 the increase in price is 10% and therefore the change in supply ...
Generally, when a firm operating in an oligopolistic market adjusts prices, other firms in the industry will be directly impacted. 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.
The purpose of price discrimination is to transfer consumer surplus to the producer. [46] Consumer surplus is the difference between the value of a good to a consumer and the price the consumer must pay in the market to purchase it. [47] Price discrimination is not limited to monopolies.
Price discrimination may improve consumer surplus. When a firm price discriminates, it will sell up to the point where marginal cost meets the demand curve. Some conditions are required for price discrimination to exist: Firms must face a downward-sloping demand curve, i.e. the demand for a product is inversely proportional to its price.
With this terminology, if a firm is earning abnormal profit in the short term, this will act as a trigger for other firms to enter the market. As other firms enter the market, the market supply curve will shift out, causing prices to fall. Existing firms will react to this lower price by adjusting their capital stock downward. [20]
If a firm raises its price above the current existing price, competitors will not follow and the acting firm will lose market share. If a firm lowers prices below the existing price, their competitors will follow to retain their market share and the firm's output will increase only marginally. [58] [59] If the assumptions hold, then: