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    Pricing ECG 507 Professor Allen Fall 2005
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    1. Introduction Pricing without market power (perfect  competition) is determined by market  supply and demand. The individual producer must be able to  forecast the market and then  concentrate on managing production  (cost) to maximize profits.
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    2. Introduction Pricing with market power (imperfect  competition) requires the individual  producer to know much more about the  characteristics of demand as well as  manage production.
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    3. Capturing Consumer  Surplus Quantity $/Q D MR P max MC A If price is raised above P*, the firm will lose sales and reduce profit. P* Q* B P 2 P C
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    4. Capturing Consumer  Surplus Quantity $/Q D MR P max MC A If price is lowered the firm gains sales, but loses revenue on previous sales and lowers profits. P* Q* B P 1 P 2
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    5. Capturing Consumer  Surplus Quantity $/Q D MR P max MC A How can the firm capture the consumer surplus in A and B? P* Q* B P 1 P 2 P C
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    6. Capturing Consumer  Surplus Price discrimination  is the charging of  different prices to different consumers. Major types Same good, different prices (cars, cosmetics) Price diff > cost diff (club floors in hotels) Price varies with consumption (pizza) Price varies by location (cement)
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This note was uploaded on 08/01/2008 for the course ECG 507 taught by Professor Allen during the Fall '05 term at N.C. State.

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slides8 - Pricing ECG 507 Professor Allen Fall 2005 1....

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