Monopoly: A monopoly is a market structure in which a single firm dominates the entire market, having the power to control the price and quantity of a product. Here are the key features of a monopoly:

1. Single Seller: In a monopoly, there is only one firm that controls the entire market. It has no close substitutes, and consumers have no alternative sellers to choose from.
2. Barriers to Entry: Monopolies are characterized by significant barriers to entry, which prevent or limit the entry of new firms into the market. Barriers can include legal restrictions, patents, high capital requirements, economies of scale, control over essential resources, and exclusive rights.
3. Price Maker: As the sole seller, a monopolistic firm has substantial control over the price of its product. It can set the price independently, taking into account its own profit-maximizing objectives and market conditions.
4. Unique Product: A monopoly often offers a unique product or service that has no close substitutes. This lack of substitute goods or services gives the monopoly firm greater market power.

Pricing Under Monopoly: In a monopoly, the firm’s primary goal is to maximize its profits. To achieve this, the firm analyzes the demand and cost conditions to determine the optimal price and output level. Here’s how pricing occurs under monopoly:

1. Demand and Marginal Revenue: A monopolist faces the entire market demand curve, which is downward sloping. Unlike in perfect competition, the monopolist’s demand curve is also its marginal revenue curve. However, since the monopolist must lower the price to sell more units, marginal revenue decreases as quantity increases.
2. Profit Maximization: A monopolist maximizes its profit by producing at the level where marginal revenue (MR) equals marginal cost (MC). This is because profit is maximized when the additional revenue from selling one more unit equals the additional cost of producing that unit (MR = MC). The monopolist then sets the price based on the demand at the profit-maximizing quantity.

Price Discrimination: Price discrimination is a pricing strategy used by monopolistic firms to charge different prices to different groups of consumers for the same product or service. It involves selling the same product at different prices based on factors such as customer segment, location, time of purchase, or quantity purchased.

Types of price discrimination include:

1. First-Degree Price Discrimination (Perfect Price Discrimination): In this form of discrimination, the monopolist charges each customer the maximum price they are willing to pay. This requires detailed information about each customer’s willingness to pay and allows the firm to capture the entire consumer surplus.
2. Second-Degree Price Discrimination: Second-degree price discrimination involves offering different pricing options based on quantity or volume discounts. This encourages customers to purchase more and allows the firm to charge higher prices for larger quantities.
3. Third-Degree Price Discrimination: This type of discrimination involves charging different prices to different market segments based on their price elasticity of demand. The firm identifies different groups with different price sensitivities and charges higher prices to those with relatively inelastic demand and lower prices to those with relatively elastic demand.

Price discrimination allows a monopolist to capture a larger portion of consumer surplus and increase its profits. However, it can also lead to social welfare losses and potential consumer dissatisfaction.

It’s important to note that price discrimination may be subject to legal regulations, particularly if it leads to unfair or anticompetitive practices.