Economics - DQ Essay Example | Topics and Well Written Essays - 500 words

Economics - DQ - Essay Example The price in this setting is Pareto efficient which means that no one can be made better off without making anybody worst off. In the short run, some firms might gain and some loses but in the long-run a perfectly competitive market yields zero profit. The scenario is different from an imperfectly competitive market characterized by one or few number of sellers which gives the firms the ability to influence the pricing strategy. In this case, the customers are price takers as opposed to the perfectly competitive market where firms are price takers. In order to maximize profits, the firm set prices where marginal cost equals marginal revenue. Unlike in the perfectly competitive scenario, the firms in imperfect market have all the advantage of raising prices especially when price elasticity of demand for customers is less than one. A price discriminating monopolist is one which charges different prices to customers according to their willingness to pay. On the other hand, a normal monopolist is one that charges prices where marginal cost intersects marginal revenue. It should be noted that as opposed to a perfectly competitive market, monopolists are free to choose prices in order to maximize profits. A normal monopolist earns a much greater profit than a price discriminating one. It should be noted that monopolist gain profit through the deadweight loss which results in not producing at the maximum capacity. This deadweight loss is attained when price is set such that marginal cost equals marginal revenue. For a price discriminating monopolist, as the prices are individually charged according to the consumers’ willingness to pay, it will charge prices to the marginal customer similar to the prices and quantity of a perfectly competitive firm. In this way, the deadweight loss is eliminated from the pictures and the profits are not made. It should be