Monopoly, Price Discrimination, and International Trade: An Economic Analysis

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Monopoly, Price Discrimination, and International Trade: An EconomicAnalysisPart A1)As per the above question, the Futures Unlimited Corporation has invented the engine ofrocket car. As an inventor it is currently enjoying an exclusive patent of the service. Onlythis firm has the exclusive right tocontrol and distribute the quantity of this certainisotope of plutonium on the market. Thus it is enjoying a monopoly. Therefore the firmwill maximize its profit.The profit maximizing behavior of a monopolist is given below:Profit (π) = Total Revenue (TR)–Total Cost (TC)= P×Q–TCAccording to the FOC of profit maximization, we get=-[Here P is not fixed]= MR–MC = 0Therefore MR = MC

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Therefore a monopolist sets a price where its MR is equal to its MC. From the abovefigure, we can see that the monopolist is enjoying a supernormal profit given by the shadedregion.Therefore, the firm will charge a monopoly price till it enjoys the exclusive patent.This createssome welfare loss to the society. This is termed as the welfare cost of monopoly or dead-weightloss. It is measured by the total decrease in producer surplus and consumer surplus.

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