outline16 - Economics 103 Lecture # 15 Price Searching...

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Economics 103 Lecture # 15 Price Searching Continued.
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The price searching model has one interesting twist to it. At P*, Q* there is a DWL. Why? Why would a firm or customers allow money to sit on the table? There is something wrong here, this can’t be an equilibrium.
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When we assume the firm can only charge one price, we are forcing it to act in a straight jacket. But why would a firm have to charge one price?
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Price Discrimination In an effort to capture the lost gains from trade, a price searching firm may try charging different customers different prices. Let’s go back to our table of prices and ask what would happen if the firm didn’t have to lower the price to everyone.
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the marginal cost of each sale is the same) then we have what is called price discrimination. When the firm charges a different price for every single unit sold, we have what is called Perfect Price Discrimination . Notice now the optimal quantity is produced. What is the consumer’s
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outline16 - Economics 103 Lecture # 15 Price Searching...

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