10-09-07 - : Charging different price for a single good....

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10-9-07 Econ Unregulated monopoly : where firms will charge price at MR=MC -is it efficient? NO!!! Regulation a) Marginal cost pricing is governments force firms to produce at its total maximum surplus. b) Governments tell monopoly to produce at AC=D - Problem : monopolist lose money when they produce at MC=D. Therefore they leave market. - Solution : 1. Subsidies from government. 2. 2-different tariff: fixed fee and MC pricing Economic Profit = Total Revenue – Total cost (Explicit and implicit) (Explicit = labor, land, and fees able to see. Implicit = opportunity cost) Price discrimination
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Unformatted text preview: : Charging different price for a single good. (Ex. Airline, Movie Theater) In order to price discriminate: 1. Need to be able to distinguish types of buyers 2. Must sell a product that cannot be resold (These are not for perfect discrimination) Perfect Price Discrimination: 1. MR coincides with the Demand price. (Firms get every consumer benefit. 2. D=MR again 3. Maximize the total surplus (no dead weight) 4. Consumer surplus =0 (producer gets all) Oligopoly : -Small number of firms compete in the market-Natural or legal barriers to entry7...
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10-09-07 - : Charging different price for a single good....

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