Lecture 4 - Price Discrimination Basic Idea Convert...

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1 Price Discrimination Basic Idea: Convert consumer surplus to profits by setting different prices for different consumers or different groups of consumers. Optimal Price and Quantity 80 100 120 MR MR=MC 0 20 40 60 0 20 40 60 80 100 120 Quantity Pric Demand MC=AC P c Q c 55 45 Profits What is needed? In order to practice price discrimination, a firm requires: – Market power – Some knowledge of particular customers’ willingness to pay (WTP). – In addition, resale must be difficult
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