Monopoly Price Ceiling

Rationale behind a price ceiling.

Monopoly price ceiling. Such conditions can occur during periods of high inflation in the event of an investment bubble or in the event of monopoly ownership of a product all of which can cause problems if imposed for a long period without controlled ratio. Then if it sells less than is demanded at p 0 it must do so at the price p 0 rather than at a higher price and so its marginal revenue is p 0. Monopoly pricing is a pricing strategy followed by a seller whereby the seller prices a product to maximize his or her profits under the assumption that he or she does not need to worry about competition.

This is shown in the diagram above. This gives us an answer of. If a price ceiling on a monopoly is set low enough a shortage in the market will result.

The marginal revenue curve goes off of the diagram because it jumps down to a point that is negative at that quantity in fact if the price ceiling on a monopoly is set low enough it could decrease the quantity that the monopolist produces just as a price ceiling on a competitive market does. This is there fore known as marginal cost pricing. A price ceiling is a government or group imposed price control or limit on how high a price is charged for a product commodity or service.

Price controls in monopoly. A price ceiling is a limit on the price of a good or service imposed by the government to protect consumers by ensuring that prices do not become prohibitively expensive. In other words monopoly pricing assumes the absence of competitors being able to garner a larger market share by charging lower prices.

Price ceilings suppose a price ceiling is imposed. For the purpose of curbing the monopoly power the monopolist may be brought under a system of price control i e a price ceiling may be imposed upon his product. We may explain the effects of such price control with the help of figs.

First since social welfare is maximum when price of a commodity is fixed at the level where it equals marginal cost of production of the commodity it is proposed that the maximum price for the monopoly should be fixed equal to the marginal cost. How does this affect the monopolist s revenue curves. This price must lie below the equilibrium price in order for the price ceiling to have an effect.