KAPOL

VIDYANIDHI

COLLEGEPRESENTED BY -

RABINA YESMIN

F.Y.BMS

Managerial Economics

Case Study

Revenue earned by monopoly by charging high price.

Price makers not takers . They can choose what priceto charge .

Case : The can of drink on the train .

There are no substitutes so the monopolists charge higher price than the original price .

The demand for drink is inelastic at the normal shop price.

The lower the elasticity of demand , the higher the price of

commodity .As there are no substitutes ,the producer charges his

Therefore , the train operator can put up the price of drink & food too & earn more revenue .

own price .

But when there is plenty of competition,it is quite a different story .

Case : Petrol stations :One station reduces price toattract customers .

A small reduction in price may lead to a good enough increase in their revenue.

Problem – When all reduce price , no oneattracts customers .

In this case , the customer who wins .

1)Why might a restaurant charge very high pricesfor wine & bottled water& yet quite reasonable

prices for food ?

Buying alcohol & bottled water includes excise duty . Compared to normal wine shops , restau rants tend to put the prices of alcohol highas it is the matter of standard. Whereas , food on the other hand tends tobe of reasonable price , as customers only pay 15% of tax from the total.

2) Why are clothes with designer labels so much more expensive than similar clothes from a localchain store , even though they may cost a similar amount to

produce ?

Clothes with designer label are more expensive because people have to payfor its brand name.

Branded clothes includes after sales se-rvice whereas , local brands hardly

offer any . There is a trust , purchasing a brand . Brand raises the standard of living .

Thank you