Markets & Pricing Policies

Market structures: Markets-Types of markets - Features and price out determinations under Perfect competition, Monopoly, Monopolistic Competition. Pricing –Pricing polices & its Objectives – Pricing Methods and its applications in business.

Classification of Market

On the basis of Area/Region.

1.Local Market- When buyers and sellers are limited to an area or region then the market is called local market.

Ex: Vegetable markets, Kirana (grocery) stores.

2.Regional Market- When buyers and sellers are concentrated to a certain region/area. The area is wide then the local market.

Ex: Guntur Mirchi Yard (Guntur) – One of Asia’s largest chili markets, known for exporting chilies worldwide.

Kakinada Agricultural Market (Kakinada) – A key hub for rice and other agricultural produce.

Vijayawada Auto Spare Parts Market (Vijayawada) – A significant center for automobile spare parts.

Chittoor Mango Market (Chittoor) – One of India’s largest mango trading centers.

3.National Market- When the demand of a commodity is limited the boundary of the country

.Eg. Flipkart (operating across India).

International Market- When the demand of a commodity crosses the boundary of a country.

EX : Infosys exporting IT services, Reliance in global energy trade.

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On the basis of Time Element

1.Very Short- Supply of a Good is limited. Cannot increase the supply. Demand determines the price of such commodities.

EX: Fish and flower markets (perishable goods).

2.Short Period- Production can be increased. Demand plays an important role in price determination.

EX: Seasonal fruits like mangoes, festive markets.

1. Long Period- Supply can be adjusted to the quantity demanded. Supply plays an imp role in price deter. Also called Normal Price. Ex: Automobile industry (Tata, Maruti).
2. Very long- Both demand and supply can be changed. Demand Inc with the inc in tastes, habits, fashion etc. and Supply inc with the inc in variable inputs. EX: Real estate, infrastructure projects.

Market based on competition

• Perfect Market- Where there is Homogeneous products. Free Entry and exit from market of a firm. Perfect knowledge of market condition, and perfect mobility of factors of production.
• Agricultural markets (wheat, rice).
• Imperfect- Where perfect competition is not in existence. Number of buyers and sellers are small. No perfect Knowledge of market conditions. There is no single price in this market. Telecom industry (Airtel, Jio, Vi competing with differentiated plans).

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On the basis of Functions

• Mixed/General market- Where all types of good are bought and sold. Found in cities. EX: E-commerce platforms like Amazon India.
• Specialized market- Where particular commodity is sold, e.g. vegetables, food grains cloths etc. EX: Bombay Stock Exchange (BSE) for stocks.
• Marketing by Samples- When goods are bought and sold on the basis of samples. E.g. Oil seeds, raw cotton. Textile markets in Surat (buyers check samples before bulk orders).
• Marketing by grades- When the goods are graded then different buyers and sellers deal in such goods on the basis of their grades. EX: Tea auctions in Kolkata, Coffee Board of India grading coffee.

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• Tea auctions in Kolkata, Coffee Board of India grading coffee.

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On the basis of nature of comodity

• Product Market- Where particular product is bought and sold. E.g. Agri product sold in agri market (krishi Mandi).
• Stock Market- Market where stock and shares, bond, securities debentures etc are bought and sold.
• Bullion Market- Market where Silver and Gold are bought and sold. In this market metallic trading takes place.

Market based on legality

• Legal Market- Where legal Transactions of goods and services take place. Recognized by the Govt. Also called fair market.
• Illegal market- Where high prices are charged what have been fixed by the Govt. Happens when supply is short. Business earn profits by indulging in Black Marketing, Smuggling. Hongkong market is an illigal market.
• Black market for gold, counterfeit goods, unauthorized betting.

Perfect competition

Perfect competition is an ideal market structure where a large number of buyers and sellers interact, and no single entity has the power to influence the market price. The market is characterized by homogeneous products, free entry and exit, perfect information, and price-taking behavior of firms. In such a scenario, the forces of demand and supply solely determine the price and quantity of goods traded.

Perfect Competition

Definition:�Perfect competition is a market structure where a large number of buyers and sellers interact, and no single firm has market power to influence prices. Products are homogeneous, and firms are price takers.

Features of Perfect Competition:

1. Large Number of Buyers and Sellers – Many buyers and sellers exist, ensuring no single entity can influence the market price.
2. Homogeneous Product – All firms sell identical products, making them perfect substitutes for each other.
3. Free Entry and Exit – Firms can freely enter or exit the market without restrictions.
4. Perfect Knowledge – Buyers and sellers have complete information about prices, products, and market conditions.
5. Perfectly Elastic Demand Curve – Firms face a horizontal demand curve, meaning they must accept the prevailing market price.
6. Perfect Mobility of Factors of Production – Resources such as labour and capital can move freely between firms.
7. No Government Intervention – The market operates without price controls, subsidies, or regulations.
8. Firm as a Price Taker – Individual firms cannot set prices; they accept the market-determined price.
9. No Transportation Cost – The assumption is that transportation costs are negligible, leading to uniform pricing.
10. No Artificial Restrictions – There are no barriers like monopolistic practices, patents, or licensing that restrict competition.

Monopoly

The term monopoly is derived from two Greek words:

• "Mono" meaning single
• "Poly" meaning seller

Thus, a monopoly is a market structure where a single firm is the sole producer and seller of a product or service that has no close substitutes. In this situation, the monopolist has significant control over price and output.

�"Monopoly is a market structure where there is a single seller of a product for which there are no close substitutes."

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According to Prof. J. S. Bain,�"A firm is said to be a monopoly when it is the sole supplier of a product that has no close substitutes and where there are barriers to the entry of new firms into the industry."

Features of Monopoly

• Single Seller, Multiple Buyers
• No Close Substitutes
• High Barriers to Entry
• Price Maker
• Profit Maximization
• Restricted Output
• Supernormal Profits
• Government Regulation
• Economies of Scale
• Price Discrimination (In Some Cases)

Single Seller, Multiple Buyers

A monopoly exists when a single firm is the sole producer and supplier of a good or service in the market. This firm has complete control over supply, and consumers do not have any alternative sellers to purchase from. Since there is no direct competition, the monopolist enjoys full market power.

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No Close Substitutes

The product or service provided by a monopolist has no close substitutes, meaning consumers have no other options to switch to. Unlike in a competitive market where substitutes are available, a monopoly restricts consumer choice, making the firm indispensable in the market.

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High Barriers to Entry

Monopolies are characterized by high entry barriers that prevent new firms from entering the industry. These barriers can be legal (patents, licenses), financial (high startup costs), or technological (advanced expertise and economies of scale). Such restrictions ensure the monopolist remains dominant without competition.

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Price Maker

Unlike firms in perfectly competitive markets that accept the prevailing market price, a monopolist has the power to set prices. However, the price is still influenced by demand, as consumers may reduce consumption if prices are set too high.

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Profit Maximization

The monopolist aims to maximize profits by carefully determining the level of output and price. It sets the production quantity where marginal cost (MC) equals marginal revenue (MR), ensuring the highest possible revenue while minimizing production costs.

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Restricted Output

In some cases, a monopolist may deliberately limit production to maintain high prices and maximize profitability. By restricting supply, the firm can create artificial scarcity, keeping prices elevated and preventing market saturation.

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Supernormal Profits

Due to the lack of competition, monopolies can sustain supernormal profits in the long run. Since there are no competing firms to drive down prices, the monopolist continues to earn excess profits beyond normal business returns.

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Government Regulation

Many governments regulate monopolies to prevent consumer exploitation. Regulatory bodies may impose price controls, service quality requirements, or even break up monopolies to encourage competition. Examples include electricity distribution and public transport regulation.

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Economies of Scale

Monopolists often benefit from economies of scale, meaning they produce at a lower per-unit cost due to large-scale production. This cost advantage makes it difficult for potential new entrants to compete, reinforcing the monopolist’s dominance in the market.

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Price Discrimination (In Some Cases)

Some monopolies practice price discrimination, where they charge different prices to different consumers based on factors like demand elasticity, location, or consumer groups. This strategy helps maximize revenue by extracting the highest willingness to pay from each segment of customers.

Monopolistic Competition

Monopolistic competition is a market structure that combines elements of both monopoly and perfect competition. In this type of market, many firms sell similar but not identical products, giving them some degree of market power while still facing competition. This structure is common in consumer goods industries, where product differentiation and brand loyalty play a significant role.

Examples of Monopolistic Competition

• FMCG Sector: Soaps, shampoos, soft drinks, and packaged foods (e.g., Lux, Dove, Pantene, Coca-Cola, Pepsi).
• Clothing Brands: Various fashion brands offer unique styles and designs (e.g., Levi’s, Nike, Adidas).
• Restaurants & Cafés: Each restaurant offers a unique menu and ambiance, differentiating it from competitors.

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Features of Monopolistic Competition

1. Many Sellers
2. Product Differentiation
3. Close but Not Perfect Substitutes
4. Freedom of Entry and Exit
5. Non-Price Competition
6. Some Control Over Pricing
7. Elastic Demand Curve
8. Short-Run Supernormal Profits, Long-Run Normal Profits
9. Advertising and Brand Loyalty
10. Lack of Perfect Knowledge

Features of Monopolistic Competition

1. Many Sellers�In monopolistic competition, there are a large number of firms operating in the market, each producing and selling its own version of a product. While no single firm dominates the market, each has some control over pricing due to product differentiation.
2. Product Differentiation�Unlike perfect competition, where products are identical, firms in monopolistic competition offer differentiated products. These differences can be based on quality, features, brand image, design, or even customer service. Because of differentiation, consumers develop preferences for specific brands.
3. Close but Not Perfect Substitutes�Products in monopolistic competition serve the same purpose but are not perfect substitutes. Consumers may be willing to switch brands, but brand loyalty, advertising, and perceived quality differences prevent perfect substitution.
4. Freedom of Entry and Exit�New firms can enter the market with relative ease, and existing firms can leave if they are not profitable. However, product differentiation may create some barriers, such as brand reputation and advertising costs, which make it challenging for new firms to gain market share.
5. Non-Price Competition�Since products are differentiated, firms engage in non-price competition through branding, advertising, packaging, and quality improvements. This helps firms build customer loyalty and maintain sales even when competitors lower their prices.

6.Some Control Over Pricing�Due to product differentiation, firms have some degree of price-setting power. However, the presence of many competitors limits how much they can increase prices. If a firm raises its price too high, consumers may switch to a competitor offering a similar product at a lower price.

7.Elastic Demand Curve�The demand curve in monopolistic competition is downward-sloping but more elastic than in monopoly. This means that while firms can set their own prices, they must be cautious, as higher prices may lead consumers to switch to competitors’ products.

8.Short-Run Supernormal Profits, Long-Run Normal Profits�In the short run, firms may earn supernormal profits due to strong brand differentiation or innovation. However, in the long run, new firms enter the market, increasing competition and driving profits toward normal levels.

9.Advertising and Brand Loyalty�Firms invest heavily in marketing and advertising to differentiate their products and build brand loyalty. This creates a psychological impact on consumers, making them prefer certain brands even if similar alternatives exist at lower prices.

10.Lack of Perfect Knowledge�Unlike perfect competition, where all buyers and sellers have full information, consumers in monopolistic competition may not have complete knowledge about all available products. This lack of perfect knowledge allows firms to influence consumer perceptions through advertising and branding.

The term Oligopoly is derived from two Greek words:

• "Oligos" meaning few, and
• "Poly" meaning to seller

Oligopoly is a market structure where a small number of large firms dominate the industry. These firms have significant control over the market but are also highly interdependent in their decision-making. Due to limited competition, firms in an oligopoly can influence prices, though they must consider their rivals' reactions. This market structure is common in industries with high entry barriers, such as telecommunications, automobiles, and airlines.

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Ex: Telecommunication Industry – Reliance Jio, Airtel, Vodafone-Idea

Automobile Industry – Maruti Suzuki, Hyundai, Tata Motors, Mahindra

Aviation Industry – IndiGo, Air India, SpiceJet

Cement Industry – UltraTech, ACC, Ambuja, Shree Cement

Banking Sector (Private) – HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank

E-commerce Platforms – Amazon, Flipkart, Reliance JioMart

Petroleum & Gas Industry – Indian Oil, Bharat Petroleum, Hindustan Petroleum

Steel Industry – Tata Steel, JSW Steel, SAIL

Media & Entertainment – Disney+ Hotstar, Netflix, Amazon Prime Video, Zee5

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Features of Oligopoly

1. Few Large Firms
2. Interdependence Among Firms
3. Barriers to Entry and Exit
4. Homogeneous or Differentiated Products
5. Price Rigidity
6. Non-Price Competition
7. High Advertising and Marketing Costs
8. Kinked Demand Curve
9. Strategic Decision-Making

1. Few Large Firms�In an oligopoly, only a small number of firms control the majority of the market. Each firm has a significant share, and their decisions impact the entire industry. For example, in the Indian telecom sector, Jio, Airtel, and Vodafone-Idea dominate the market.
2. Interdependence Among Firms�Since there are only a few competitors, each firm closely watches the actions of the others. A price change by one company may lead to similar moves by competitors. For example, if Jio reduces its internet prices, Airtel and Vodafone-Idea may also lower their prices to stay competitive.
3. Barriers to Entry and Exit�New firms find it difficult to enter an oligopolistic market due to high investment costs, brand loyalty, and government regulations. For example, entering the automobile or airline industry requires huge capital and infrastructure.
4. Homogeneous or Differentiated Products�Products in an oligopoly may be either homogeneous (identical) or differentiated (unique in branding or features). For example, in the steel industry (homogeneous products), Tata Steel and JSW Steel offer similar steel products, while in the car industry (differentiated products), Maruti Suzuki and Hyundai compete by offering different car designs and features.
5. Price Rigidity�Prices in an oligopoly tend to remain stable for long periods. If one firm lowers prices, others may follow to avoid losing customers. However, if a firm increases prices, competitors might not do the same, leading to customer loss. This creates a kinked demand curve, where firms hesitate to change prices frequently.

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6Non-Price Competition�Since price wars are not beneficial, firms compete through advertising, branding, quality improvements, and customer service. For example, Pepsi and Coca-Cola invest heavily in marketing rather than lowering prices to gain customers.

7.High Advertising and Marketing Costs�Oligopolistic firms spend heavily on advertising to maintain their market position. Companies like Jio, Airtel, and Vodafone-Idea run aggressive marketing campaigns to attract and retain customers.

8.Kinked Demand Curve�The kinked demand curve theory explains why firms do not change prices frequently. If a firm reduces its price, competitors will match it, but if it increases the price, competitors will not follow, causing a loss of customers.

9..Strategic Decision-Making�Every business decision in an oligopoly is made strategically, considering competitors’ possible reactions. Companies use game theory to predict rival firms' moves and adjust their strategies accordingly.

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Perfect Competition

Meaning: A market with many sellers offering identical products, where no single firm can influence the price.

✅ Price Determination:

• The price is set by market forces of demand and supply.
• Individual firms are price takers, meaning they must accept the market price.
• The firm’s demand curve is perfectly elastic (horizontal).

✅ Output Determination:

• Firms produce where Marginal Cost (MC) = Marginal Revenue (MR).
• Firms make normal profits in the long run due to free entry and exit.

🔹 Example: Agricultural markets like wheat and rice.

This graph represents the long-run equilibrium condition in a perfectly competitive market, where firms earn normal profit (zero economic profit).

Key Elements in the Graph:

1. Price and Revenue (P = MR = AR)
1. The price (P) is determined by market forces and remains constant (horizontal demand curve).
2. Since the firm is a price taker, its marginal revenue (MR) and average revenue (AR) are equal to P.
2. Cost Curves (AC and MC)
• The Average Cost (AC) curve is U-shaped, representing economies and diseconomies of scale.
• The Marginal Cost (MC) curve intersects the AC curve at its minimum point.
3. Equilibrium Condition (AC = AR)
• The firm produces output Q, where price (P) equals average cost (AC).
• Since Total Revenue = Total Cost, the firm earns only normal profit (zero supernormal profit).

Implications:

✅ No Incentive for Entry or Exit

• Since firms earn normal profit, new firms have no incentive to enter, and existing firms have no reason to exit.

✅ Long-Run Stability

• If firms were making supernormal profits, new firms would enter, increasing supply and lowering prices.
• If firms were making losses, some would exit, reducing supply and raising prices.

✅ Efficiency

• Firms operate at the minimum average cost, ensuring productive efficiency.
• Since P = MC, resources are optimally allocated (allocative efficiency).
• 📌 In the long run, firms in a perfectly competitive market always settle at normal profit due to free market entry and exit.�📌 The firm is covering all its opportunity costs but isn’t making excess profit.

Interpretation : Short-Run Supernormal Profit

1. Concept:
1. There presents a firm's short-run equilibrium where it earns supernormal profit (also known as abnormal or economic profit).
2. This occurs when Average Revenue (AR) > Average Cost (AC).
2. Graph Analysis:
• The X-axis represents Output (Quantity produced).
• The Y-axis represents Price and Cost.
• The LAR = MR (Long-run average revenue = Marginal revenue) curve is horizontal, indicating a price-taking firm in a perfectly competitive market.
• SAC (Short-run Average Cost) and SMC (Short-run Marginal Cost) curves are depicted.
3. Key Points:
• Equilibrium occurs at point E, where MR = MC (profit-maximizing condition).
• The firm is earning profit because the price (P) is higher than the average cost (H).
• The shaded area (P-H-F-E) represents total supernormal profit.
4. Implication:
• In the short run, firms in perfect competition can earn supernormal profit.
• However, in the long run, new firms enter the market due to profit opportunities, increasing supply and pushing prices down until only normal profit remains.

Interpretation : Short-Run Normal Profit and Loss

This image presents two scenarios for firms in the short run:

1. Left Graph (Firm B - Normal Profit)
1. The firm reaches equilibrium at point E₂, where AR = AC.
2. Condition: AR = AC (Average Revenue equals Average Cost).
3. This means the firm covers all costs, including normal profit (opportunity cost of capital and entrepreneurship), but earns no extra economic profit.
4. The firm continues to operate in the market as it is sustainable.
2. Right Graph (Firm C - Loss-Making Firm)
• The firm reaches equilibrium at point E₃, where AR < AC.
• Condition: AR < AC (Average Revenue is less than Average Cost).
• This results in losses (shown by the vertical distance between price and AC).
• The firm can still operate in the short run if AR > AVC (Average Variable Cost), covering variable costs.
• However, if losses persist in the long run, the firm will exit the market.

Key Takeaways:

• Normal profit is when a firm earns just enough to cover all costs, including opportunity costs (AR = AC).
• Loss occurs when the firm's revenue is lower than its total costs (AR < AC).
• Firms making normal profit stay in the market, while loss-making firms may shut down in the long run.

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• MC (Marginal Cost) curve intersects both AVC and ATC curves at their minimum points.
• AVC curve (yellow) represents variable costs per unit.
• ATC curve (pink) includes both fixed and variable costs.
• P = AR = MR (Demand curve) is at the shutdown point where it just meets AVC.
• Point P (Shutdown Price): If the price falls below AVC, the firm should shut down because it cannot even cover its variable costs.
2. Decision Making:
• If P > AVC, the firm continues production (even if making losses) because it covers at least variable costs.
• If P < AVC, the firm shuts down immediately because it cannot sustain operations.

Conclusion:

• The shutdown point is the lowest price a firm can charge before it ceases production.
• It is a short-run decision—if the firm expects prices to rise, it may temporarily operate at a loss.
• In the long run, if prices remain below AVC, the firm exits the market permanently.

Price and Output Determination Under Monopoly

In a monopoly, a single seller dominates the market with no close substitutes and significant barriers to entry. The monopolist has complete control over price and output decisions.

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1.Revenue Curves in Monopoly

• Demand Curve (AR Curve): The monopolist faces a downward-sloping demand curve (not a price taker like in perfect competition).
• Marginal Revenue (MR Curve): The MR curve lies below the AR curve because the monopolist must lower the price to sell more units.

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2. Equilibrium Condition: Profit Maximization

A monopolist maximizes profit where:

📌 MR = MC�(Marginal Revenue = Marginal Cost)

• The monopolist determines the profit-maximizing output (Qm) where MR = MC.
• The price (Pm) is set based on the demand curve at this output level.

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Price and output determination�

• During short period
• Profit making situation
• loss incurring situation

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• During long period
• Profit making situation

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Profit making situation

The diagram represents the price-output equilibrium under monopoly, showing how a monopolist determines profit-maximizing price and output.

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Key Components of the Diagram

Demand and Revenue Curves

AR (Average Revenue) Curve: Downward sloping, showing that the monopolist must lower price to sell more.

MR (Marginal Revenue) Curve: Lies below the AR curve, indicating that MR falls faster than AR.

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Cost Curves

MC (Marginal Cost) Curve: Upward-sloping.

AC (Average Cost) Curve: U-shaped.

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Equilibrium Condition (MR = MC)

The monopolist maximizes profit at point E, where MR = MC.

The corresponding output level is OM.

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Price Determination

At output OM, the price is determined from the AR curve at point P', leading to price P.

Profit Area

Total Revenue (TR) = Price × Output = P × OM

Total Cost (TC) = ATC × Output = T × OM

Profit per unit = P - T

Total Profit = P'TLP (Shaded area)

Loss incurring situation

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Key Components of the Diagram

1. Revenue Curves:
1. AR (Average Revenue) Curve: Downward sloping, showing that the monopolist must reduce the price to sell more. It also represents the demand curve.
2. MR (Marginal Revenue) Curve: Lies below AR, indicating that each additional unit sold generates less revenue than the previous one.
2. Cost Curves:
• SAC (Short-Run Average Cost) Curve: U-shaped, showing the firm's cost per unit at different output levels.
• SMC (Short-Run Marginal Cost) Curve: Intersects MR at point E, determining the equilibrium quantity OS.
• AVC (Average Variable Cost) Curve: Represents variable costs per unit.
3. Equilibrium Condition:
• The profit-maximizing output is determined where MR = MC (Point E).
• The corresponding price (A) is set based on the AR curve at this output level.
4. Loss Identification:
• The firm's average cost (AC) at output OS is higher than the price (AR).
• The loss per unit is represented by AB (difference between AC and AR).
• The total loss is the area AB × OS (shaded region marked "LOSS").

• During long period
• Profit making situation

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Revenue Curves:

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AR (Average Revenue) Curve: Downward sloping, showing that the monopolist must lower the price to sell more units.

MR (Marginal Revenue) Curve: Lies below the AR curve, reflecting the fact that the firm must reduce the price of all units to sell an additional one.

Cost Curves:

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LAC (Long-Run Average Cost) Curve: Represents the per-unit cost of production when all inputs are variable.

LMC (Long-Run Marginal Cost) Curve: Intersects both LAC and MR at the equilibrium output.

Equilibrium Condition:

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The monopolist maximizes profit where MR = MC (Point E).

The corresponding output is OM.

The firm sets the price P based on the AR curve at this output level.

Supernormal Profits Identification:

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The firm's average cost (LAC) at output OM is lower than the price (AR).

The profit per unit is PJ (difference between price and LAC).

The total supernormal profit is the shaded area PJP1H.

PRICE DETERMINATION UNDER MONOPOLISTIC COMPETITION:

• Under monopolistic competition, the firm will be in equilibrium position when marginal revenue is equal to marginal cost. So long the marginal revenue is greater than marginal cost, the seller will find it profitable to expand his output, and if the MR is less than MC, it is obvious he will reduce his output where the MR is equal to MC. In short run, therefore, the firm will be in equilibrium when it is maximising profits, i.e., when MR = MC.

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Short Run Equilibrium: Short run equilibrium is illustrated in the following diagram

In the above diagram, the short run average cost is MT and short run average revenue is MP. Since the AR curve is above the AC curve, therefore, the profit is shown as PT. PT is the supernormal profit per unit of output. Total supernormal profit will be measured by multiplying the supernormal profit to the total output, i.e. PT × OM or PTT’P’ as shown in figure (a). The firm may also incur losses in the short run if it is facing AR curve below the AC curve. In figure (b) MP is less than MT and TP is the loss per unit of output. Total loss will be measured by multiplying loss per unit of output to the total output, i.e., TP × OM or TPP’T’.

Long Run Equilibrium: Under monopolistic competition, the supernormal profit in the long run is disappeared as new firms are entered into the industry. As the new firms are entered into the industry, the demand curve or AR curve will shift to the left, and therefore, the supernormal profit will be competed away and the firms will be earning normal profits. If in the short run firms are suffering from losses, then in the long run some firms will leave the industry so that remaining firms are earning normal profits.

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The AR curve in the long run will be more elastic, since a large number of substitutes will be available in the long run. Therefore, in the long run, equilibrium is established when firms are earning only normal profits. Now profits are normal only when AR = AC. It is further illustrated in the following diagram:

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Pricing

• You pay rent for your apartment, tuition for your education, and a fee to your dentist or physician.
• The airline, railways, taxi and bus companies charge you a fare; the local utilities call their price a rate; and the local bank charges you interest for the money you borrow.
• The guest lecturer is paid an honorarium and the government official takes a bribe to pass a file which was his job anyway.

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Price brings in the revenues

• This is the only element in the marketing mix that brings in the revenues. All the rest are costs
• Price communicates the value positioning of the product.

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Price = Cost + Profit

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Objectives of Pricing policies

• Profit Maximization
• Market Penetration
• Survival
• Competitive Advantage
• Customer Retention
• Product Quality Leadership
• Sales Growth & Market Share

Objectives of Pricing

Businesses set pricing objectives to align with their overall strategy. The common objectives include:

1. Profit Maximization – Setting prices to maximize revenue and profitability.
2. Market Penetration – Setting low prices to enter new markets and attract customers.
3. Survival – Setting prices to cover costs and sustain the business in tough market conditions.
4. Competitive Advantage – Pricing products lower or better than competitors.
5. Customer Retention – Offering consistent and attractive prices to maintain long-term customer relationships.
6. Product Quality Leadership – Setting premium prices for high-quality, luxury, or branded products.
7. Sales Growth & Market Share – Pricing strategies to increase the volume of sales and market dominance.