Page 265 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes It is clear from Fig. 13.6 (i) Margined cost of total production is equal to combined marginal revenue
(ii) Marginal revenue of both markets is equal (iii) Marginal revenue of both markets is equal to the
margined revenue of total production.
Figure 13.6 shows elasticity of demand in market A is less than market B. So, in comparison to market
B, price is high and quantity of selling is less in market A.
In brief, according to Ferguson, “If the aggregate market for a monopolist product can be divided into
sub-markets with different price elasticities, the monopolist can profitably practice price discrimination.
Total product is determined by equating marginal cost with combined monopoly marginal revenue.
The output is allocated among the sub-markets so as to equate marginal revenue in each sub-market
with combined marginal revenue as MC = MR A+B . Finally, price in each sub-market is determined
directly from the sub-market demand curve given the sub-market allocation of sales.”

Self Assessment

State whether the following statements are True/False:
9. Marginal Revenue (MR) = Marginal cost (MC).
10. Minimum Loss = AC – AVC = AEC.
11. Monopolists have to bear loss of average fixed costs.
12. During long run price is less than long run average cost.

13.12 Dumping

Dumping is a special form of price discrimination. Dumping means selling of goods in foreign market
at less price as compare to local market. Under this situation, there exist two types of market, first one
is local market where the monopolist has complete monopoly and second one is foreign market where
there is complete competition. That is why monopolist can change more for goods in local market but
in foreign market he has to charge comparatively less. Dumping can be practised to achieve many
objectives, like (i) for eliminating the competitors in foreign market, (ii) for gaining the profit of law of
increasing returns, (iii) for creating demand of goods in foreign market, (iv) for getting relief from high
stock of goods, (v) for gaining profit due to the difference in elasticity of demand.

13.13 Price and Output Determination Under Dumping

Price and output determination under dumping can be explained with the help of Fig. 13.7.
Figure 13.7 has been drawn with the assumption of having two markets-first local market and second
foreign market. In local market firm enjoys monopoly, and in foreign market it stays in the state of
perfect competition. Monopolist will be at the state of equilibrium when profit will be maximum and
profit will only be maximum when total marginal revenue will be equal to total marginal cost as
shown in Fig. 13.7.
(i) In the state of perfect competition, horizontal line PD represents average revenue curve (AR ) in
W
foreign market. In this condition of market average revenue (Price) is equal to marginal revenue
(AR = MR )
W
w
(ii) Due to state of monopoly in local market, It is necessary to understand for you.
slope of average revenue curve (AR ) is Under the situation of Dumping a supplier is a
H
downward, and slope of marginal revenue monopolist in local market but a complete competitor
curve MR is also downward, and which is in international market. That is why slope of AR curve
is downward, and of the shape of a horizontal line.
H
below to AR .
H

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