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JINGXIAN TA12 - ECON1110 TA Section 12 Professor Jennifer...

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ECON1110 TA Section 12 Professor Jennifer Wissink TA Jingxian Zheng April 16, 2009 1 Concepts Review 1. Efficiency in a perfectly competitive industry and a simple monopoly Perfect Competition Simple Monopoly CS P c BC > P sm BE PS P c AC < P sm AFE NSS ABC > ABEF DWL 0 < FEC P c < P sm Q c > Q sm 2. Price discrimination Definition A monopolist might be able to change different prices for different units sold and enhance its profit. It could change different people different prices or charge the same person different price for different units. Two classic forms of price discrimination: Perfect/first degree price discrimination: the monopolist charges the demand price for each unit sold (Graph 2) (I) Demand curve becomes marginal revenue (II) Profit maximized at MR ( Q FDPD ) = MC ( Q FDPD ) (III) Charge a different price for each different unit (IV) Q FDPD is Pareto efficient and all NSS move from consumers to the monopolist as producers surplus, no dead weight loss. (V) Extreme condition in market, opposite to P.C. Third degree price discrimination: Segment market and then charge a different price in each market, same price within the market segment.
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