discriminating monopolist


Fig. 47 Discriminating monopolist. A price-discriminating model involving two markets. The demand curve facing the monopolist in market A (Da) is less elastic than that in market B (Db). The horizontal addition of Da and Db gives Dt, and the horizontal addition of the MARGINAL REVENUE curves MRa and MRb gives MRt. MC is the monopolist's MARGINAL COST CURVE. The profit-maximizing output (see PROFIT MAXIMIZATION) for the monopolist is determined by the intersection of the MC curve for his total output and the aggregated MRt curve. The broken horizontal line connects the two diagrams at the level where the MR of the monopolist in market A is equal to the MR in market B, and this aggregate MRt is equal to the MC of the total output. It follows that the profit-maximizing output in market A is OA and in market B, OB. At these respective outputs, the discriminating monopolist will charge OPa in market A and the lower price OPb in market B.