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

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Monopoly, Price Discrimination, and International Trade: An Economic Analysis Part A 1) As per the above question, the Futures Unlimited Corporation has invented the engine of rocket car. As an inventor it is currently enjoying an exclusive patent of the service. Only this firm has the exclusive right to control and distribute the quantity of this certain isotope of plutonium on the market. Thus it is enjoying a monopoly. Therefore the firm will maximize its profit. The profit maximizing behavior of a monopoli st is given below: Profit (π) = Total Revenue (TR) – Total Cost (TC) = P×Q – TC According to the FOC of profit maximization, we get = - [Here P is not fixed] = MR – MC = 0 Therefore MR = MC
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Therefore a mono polist sets a price where its MR is equal to its MC. From the above figure, we can see that the monopolist is enjoying a supernormal profit given by the shaded region. Therefore, the firm will charge a monopoly price till it enjoys the exclusive patent . This creates some welfare loss to the society. This is termed as the welfare cost of monopoly or dead - weight loss. It is measured by the total decrease in producer surplus and consumer surplus.

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