20+discrimination+and+regulationHandout

20+discrimination+and+regulationHandout - u first degree...

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1 u efficient, but all surplus PS Sell 3rd unit at $3 Sell 2nd unit at $5 Sell 1st unit at $9 Price Discrimination u first degree --- perfect price discrimination u different price (MB) for each unit sold 0 2 4 6 8 10 0 1 2 3 4 5 Quantity ($) D MC u sell more if p>MC Monopolist’s Revenue u two-part tariff u price at MC u require payment of surplus generated Price Discrimination u third degree u different prices in different markets u MR=MC in each market u price determined by demand price higher in market where demand less elastic Charge relatively higher price in market 1 lower price in market 2 Charge relatively Q ($) D 1 MC Q ($) MR 1 D 2 MR 2 Market 1: Relatively Inelastic Demand Market 2: Relatively Elastic Demand u transaction point determined by supply at price ceiling u “price controls produce shortages, black markets, and reduced quality” u Q D > Q S u helps demanders when equilibrium price “too high” u price ceiling - maximum price Price Controls S D Quantity Price (per unit) Q E E P E Price ceiling u upward pressure on price; price cannot rise u excess demand or shortage shortage Q S D Q
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