ECON1006 Chapter 10 Rajni Dogra, LLB, PhD

Monopoly, Cartels, and Price Discrimination Business School (K)

St. Lawrence College

Keywords
Price discrimination: The sale by one firm of different units of a product at two or more
different prices for reasons not associated with differences in cost.

Cartel: An organization of producers who agree to act as a single seller in order to maximize
joint profits.

Natural monopoly: An industry characterized by economies of scale sufficiently large that only
one firm can cover its costs while producing at its minimum efficient scale.

Monopoly: A market containing a single firm.

Monopolist: A firm that is the only seller in a market.

Class Activity:
1. A monopolist’s Average and Marginal Revenue
Fill the table and draw MR, AR Curves on the graph. (Take Quantity on X axis and AR, MR on Y
axis). Use excel to work.

  Computing Marginal and Average Revenue

Total Margina
Quantity ∆ Average
Price ∆ Quantity Sold Revenu l
Sold TR Revenue
e Revenue
1 2 3 4= 1x2 5 6= 5/3 7= 4/2
$10 0 $0
9 10
8 20
7 30
6 40
5 50
4 60
3 70
2 80
1 90
0 100

2. A numerical example of Profitable Price Discrimination

ECON1006 Chapter 10 Rajni Dogra, LLB, PhD
Monopoly, Cartels, and Price Discrimination Business School (K)

St. Lawrence College

PA QA ∆ QA TRA ∆ TRA MRA MCA TCA Profits

1 2 3 4=1x2 5 6 7 8= 2 x $4 9=3-8

9 30   270       120 150

10
11
12
13
14
15

PB QB ∆ QB TRB ∆ TRB MRB MCB TCB Profits

1 2 3 4=1x2 5 6 7 8=2x$4 9=3-4

9 42   378       168 210

10    
11    
12    
13    
14    
15    

a. What is profit maximization condition for a monopolist?

b. In which market segment a monopolist will charge higher price and why?