How can dumping increase profits for a monopolist

Thus the monopolist sells more in the foreign market with the more elastic demand at a low price and less in the home market with the less elastic demand at a high price. His total profits are TREC. Dumping affects both the importer and exporter countries in the following ways:. The effects of dumping on the country, in which a monopolist dumps his commodity, depend on whether dumping is for a short period or a long period and what are the nature of the product and the aim of dumping.

Due to the low price of the dumped commodity, the industry of that country has to incur a loss for some time because less quantity of its commodity is sold. Dumping is harmful for the importing country if it continues for a long period.

This is because it takes time for changing production in the importing country and its domestic industry is not able to bear competition. But when cheap imports stop or dumping does not exist, it becomes difficult to change the production again. If the dumped commodity is a consumer good, the demand of the people in the importing country will change for the cheap goods.

When dumping stops, this demand will reverse, thereby changing the tastes of the people which will be harmful for the economy. If the dumped commodities are cheap capital goods, they will lead to the setting up of a now industry. But when the imports of such commodities stop, this industry will also be shut down. Thus ultimately, the importing country will incur a loss.

But after competition ends and he sells the same commodity at a high monopoly price, the importing country incurs a loss because now it has to pay a high price. If a tariff duty is imposed to force the dumper to equalise prices of the domestic and imported commodity, it will not benefit the importing country.

But if a monopolist produces more commodities in order to dump it in another country, consumers benefit. This is because with more production of the commodity, the marginal cost falls. But this lower price than the monopoly price depends upon the law of production under which the industry is operating. There will be no change in price under fixed costs. It is only when costs fall under the law of increasing returns that both the consumers and the monopolist will benefit from dumping.

Consequently, the demand for the required inputs such as raw materials, etc. The exporting country earns foreign currency by selling its commodity in large quantity in the foreign market through dumping. As a result, its balance of trade improves.

But it is necessary that the rate of duty on imports should be equal to the difference between the domestic price of the commodity and the price of the dumped commodity. Generally, the tariff duty is imposed more than this difference to end dumping, but it is likely to have harmful effects on other imports. Import quota is another measure to stop dumping under which a commodity of a specific volume or value is allowed to be imported into the country.

If a firm is making an economic profit, then the factors of production are being paid their opportunity costs. Along a downward-sloping monopoly demand curve, marginal revenue is greater than price. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should shut down because economic profits are negative.

For a perfectly competitive firm, the demand curve is the marginal revenue curve. A firm in a n industry will have the most elastic demand curve monopolistic oligopolistic monopolistically competitive perfectly competitive G.

If the demand curve of a monopolist is in the inelastic range, then total revenue will fall if the price increases. Monopolistic competition and oligopoly are examples of monopoly. Under which market structure do firms face the flattest most elastic demand curve? At the point of long-run equilibrium for a perfectly competitive firm, economic profits are zero. Profit maximization and loss minimization BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville.

Complete the following table to determine whether Bob is correct. Homework Help 3,, Economics , Start filling in the gaps now. New to OneClass? Sign up. Back to top. Price Dollar per can. Quantity Demanded Cans. Total Revenue Dollars. Total Cost Dollars. Price discrimination can benefit firms with high fixed costs associated with the building of infrastructure, and its maintenance. This includes natural monopolies such as gas, electricity supply, and transport services. For example, having more passengers on a train that is going to run anyway provides additional revenue to the train operators.

This revenue may be used to add to profits given that the marginal cost of one extra passenger is virtually zero or to cover new fixed costs, such as track or safety improvements. Similarly, price discrimination may also enable manufacturing and retail firms to clear their existing stocks quickly when required — hence making better use of their shop or factory space.

Price discrimination according to the time of day means that the flow of customers into retail stores can be managed more effectively, which might provide a better experience for shoppers and spread out the work for staff.

Firms may wish to trial new products in different locations, and may match their prices to the specific demand conditions found in those local markets. Also, firms can offer discounts in order to get consumer feedback on these trialled products, and on existing ones.

Similarly, price discrimination may enable firms sell to export markets, basing their prices on what consumers are prepared to pay in each territory — which can vary considerably from country to country.

From a macro-economic perspective, international trade is likely to be created by price discrimination. As a result of generating additional revenue, price discrimination can enable firms to survive. For example, small cinemas might be better able to survive if they can offer low priced off-peak cinema tickets to the overs for day-time screenings.

Lower prices could also result from the application of scale economies as above. If we look specifically at goods and services consumed by children, but where adults are needed to accompany them, it can be argued that charging children a much lower price enables families as a whole to benefit, and gain increased group utility.

For example, if cinemas or theme parks set low prices for children or even zero price for those under a certain age , or offer with family discounts, more parents will be able to attend, and accompany their children. This means that, in the longer term, cinema chains and theme parks will increase their revenue and profits. The same logic can be applied to travel and holidays, with child and family discounts encouraging demand and helping generate revenue. Having different prices may enable consumers to match their purchasing and shopping to their own free time.

We can extend the analysis to consider the role of price discrimination in reducing market failure , such as enabling wider consumption of merit goods.

In a natural monopoly , because of cost-technological factors, it is more efficient to have one firm responsible for all the production because long-term costs are lower.

This is known as subadditivity. Proposed mergers that could potentially stifle competition and create an unfair marketplace are typically rejected. The Herfindahl-Hirschman Index , a calculation measuring the degree of concentration in a given market, is one tool regulators use when making decisions about a potential merger.

A price maker is a market leader or sole provider. It possesses pricing power and basically holds enough sway to dictate how much customers pay. Price takers are the opposite. The ability to jack up prices is mainly determined by the number of substitutes in the market and the price elasticity of demand. Companies are free to price their goods as they wish.

However, if regulators deem that their pricing strategies are breaching antitrust laws and are indicative of predatory business practices, they can step in and take action.

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