Principles of Economics- Mankiw (5th) 328

Principles of Economics- Mankiw (5th) 328 - 338 PA R T F I...

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338 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY are no better off for having bought the book: The price they pay exactly equals the value they place on the book, so they receive no consumer surplus. The entire in- crease in total surplus from price discrimination accrues to Readalot Publishing in the form of higher profit. THE ANALYTICS OF PRICE DISCRIMINATION Let’s consider a bit more formally how price discrimination affects economic wel- fare. We begin by assuming that the monopolist can price discriminate perfectly. Perfect price discrimination describes a situation in which the monopolist knows ex- actly the willingness to pay of each customer and can charge each customer a dif- ferent price. In this case, the monopolist charges each customer exactly his willingness to pay, and the monopolist gets the entire surplus in every transaction. Figure 15-10 shows producer and consumer surplus with and without price discrimination. Without price discrimination, the firm charges a single price above
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