Multiprice monopolies

Multiprice monopolies - Multiprice Monopolies Price...

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Price Discrimination: when a producer charges different prices for different units of the same product for non-cost reasons. Ex . Senior / student / youth discounts. Residential homeowners pay more for water, electricity than big business. Charging different prices b/c different people have different marginal benefits. Also for cost reasons, e.g. selling in bulk rather than individually. The demand side. I. Forms of Price Discrimination A. Discrimination among buyers – different buyers are willing to pay different amounts for the same product. Example: An airline ticket; MC = $25 Willingness-to-pay = MB = D Person 1 $800 (business traveler) Person 2 $600 (holiday traveler) Person 3 $400 (leisure traveler on budget) Person 4 $200 (student) 1. If the monopolist sells at a single price, then it will charge $600 and sell 2 tickets. Extra Profit= 2*600 – 2*25 = $1150 2. Perfect Price Discrimination: selling each unit for exactly the buyer’s MB. The airline will sell all 4 tickets. Extra Profit = (800 + 600 + 400 + 200) – 4*25 = $1900
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This note was uploaded on 11/13/2007 for the course ECON 2010 taught by Professor Mertens,wi during the Fall '07 term at Colorado.

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Multiprice monopolies - Multiprice Monopolies Price...

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