Then, TC > TR indicating negative profit for the monopolist.TR and TC curves again intersect each other at point E1, which corresponds to the OQ2 level of output and zero profit level as indicated by point S.Beyond the OQ1 level of output, the profit will decline as shown by the LS segment of the total profit line. The corresponding level of output is OQ1 which is the profit-maximizing level of output.TR and TC curve at point M and N points are parallel to each other.The gap between TR and TC is maximum when the tangent drawn on TR and TC curves are parallel to each other.Corresponding to this point of maximum profit, the gap between TR and TC in graph 1 is maximum, and the gap is indicated as MN.Positive profit starts from point T and rises up to point L, where the profit is maximum.After point E, when the monopoly firm reaches the breakeven, TR increases faster rate compared to TC and leads to TR > TC. In graph 2 total profit shows the negative trend from point K to T.Up to point E, TC lies above TR, showing a negative profit for the monopoly firm. Corresponding to the intersection point E, OQ is the level of output.Both TR and TC curve initially intersect each other at point E, which is the breakeven point.TC is also shown as an upward sloping curve starting from R, a point on Y-axis above the origin. In graph 1, TR is an upward sloping curve that begins at point O, and it increases with an increase in the level of output.TR and TC curves and corresponding Part B shows the total profit of the monopolist with the help of the total profit line.According to the TR and TC approach graph 1&2 elaborates on the situation of monopoly equilibrium and the determining pricing under monopoly.Total Revenue and Total Cost Approach Graph Explanation graph Thus, to attend equilibrium or to maximize profit, the firm tries to produce output at which there is a maximum gap between the TR and TC.īoth TR and TC curves under monopoly are upward sloping TR starts from the point of origin where total output is equal to zero and TC begins from a point above the origin on Y-axis i:e fixed cost even in the case when the output is zero in the short run. However, a monopoly firm would not set the price of its product at such a high level so that its profitability will adversely be affected due to a decline in market demand. To maximize its profits, a monopoly firm sells its product at the maximum possible price and adjusts the supply of the commodity in the market accordingly. Total Revenue (TR) and Total Cost (TC) Approach : As per this approach a monopoly firm will reach it’s equilibrium when the difference between TR and TC is maximum, and it will define the pricing under monopoly. Total Revenue (TR) and Total Cost (TC) Approach Let’s understand pricing under monopoly from both of these approaches. Marginal Revenue (MR) and Marginal Cost (MC) Approach.Total Revenue (TR) and Total Cost (TC) Approach.To determine the equilibrium and pricing under a monopoly firm, there are two approaches: The firm will attend to its equilibrium when it maximizes profit or produces a profit maximising level of output. The equilibrium point of the firm determines to price under monopoly. Now, we understood the meaning of a monopoly market, so let’s know about the pricing under a monopoly market and how price discrimination works in the market. Monopoly Sellers has two most significant advantages which they enjoy are: being a price maker and profit maximization. In other words, a monopoly firm is equal to one sector. Monopolies are the only firm in the industry, so a monopoly firm constitute an entire industry. So, these become the restrictions in the entry of specific industry for other sellers. Government license, ownership of resources, copyright, patent, and high starting cost are a few of the reasons behind which gives rise to the monopoly market. Since, there is a single seller in the market, who runs the entire industry, that is why it is called a monopoly market. Monopoly Meaning In Economics : A monopoly market is where there is only a single seller. Price discrimination in price under monopoly Monopoly Meaning In Economics
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