essay1 - ECON2101 Microeconomic Theory Leung Wai San...

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ECON2101 Microeconomic Theory Leung Wai San Queenie Constance University No. 2005226570 MTR Fare- Single Journey Ticket Vs Octopus Card System When traveling by the MTR, passengers can choose using either the Single Journey Ticket or the Octopus Card. However, have you ever wonder why users of Octopus Card enjoy a lower fare than those using the Single Journey Ticket? In fact, this can be explained by third-degree price discrimination as well as the different variable costs incurred in operating the Octopus Card System and providing the Single Journey Tickets. Octopus Card Single Journey Ticket 3.8 4.0 4.6 5.0 5.6 6.0 6.8 7.5 7.9 9.0 8.2 9.0 10.0 11.0 11.8 13.0 12.6 14.0 15.1 17.0 18.1 20.0 20.1 23.0 23.1 26.0 Let’s consider the third-degree price discrimination model first. Being the most common form of price discrimination, third-degree price discrimination occurs when the monopolist sells output to different people for different prices, where every unit of output sold to a given person sells for the same price. This model applies to our investigation of MTR Fare because MTR Corporation can indeed be regarded as a monopolist- a firm who can change the price of goods by changing its quantity sold (or services rendered). In the third-degree price discrimination model, we assume that MTR Corporation is capable of segregating the passengers into two groups: one with a higher elasticity of demand and the other with a lower elasticity of demand. From daily observation, we found that users of Single Journey
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This note was uploaded on 09/06/2010 for the course FBE ECON2113 taught by Professor Franchsica during the Fall '09 term at HKU.

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essay1 - ECON2101 Microeconomic Theory Leung Wai San...

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