econ100_winter2010_lecture16_topost

econ100_winter2010_lecture16_topost - Third Degree Price...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
Third Degree Price Discrimination P Q D2 MR2 MRT MC MR1 MRT = MC Q1 Q2 P1 P2
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Third Degree Price Discrimination Constant MC simplifies things P Q D2 MR2 MRT MC MR1 MRT = MC Q1 Q2 P1 P2
Background image of page 2
Ex: 3 rd D P.D. Tire company sells tires under brand name AND under generic label to discount stores P b = 70-.0005Q b P g = 20 -.0002Q g MC (=AC) = 10 (CONSTANT MC) Assuming conditions for pd can be met, what are optimal prices?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
P b = 70-.0005Q b MR b = 70-.001Q b 70-.001Q b = 10 Q b = 60,000 P b = 70-.0005(60,000) = 40 Price generic tires at $40 and will sell 60K
Background image of page 4
P g = 20 -.0002Q g MR g = MC 20-.0004Q g = 10 Q g = 25,000 P g = 20 -.0002(25,000) = 15 What if monopolist can’t price discriminate? Look at total demand
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
P = 70 - .0005Q b P = 20 - .0002Q g Demand curves are summed, ONLY at P <= 20. Above P=20, only brand names have positive demand Sum demand curves for P<=20
Background image of page 6
Q b = 140,000 - 2000P Q g = 100,000 5000P Q = 240,000 -7000P, OR P = 34.28 - .00014Q MR = 34.28 - .00028Q = 10
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
MR = 34.28 - .00028Q = 10 Q = 24.28/.00028 = 86,714, P = 34.28 - .00014(86,714) = 22.14 NOT <=20 This means must sell only to high demand group Combining demand leads to price in a range with no demand from “generic” group
Background image of page 8
SO, monopolist must sell to only high demand group if can not price discriminate P = 70 - .0005Qb MR = 70 - .0010Qb = 10 P = 40, Q = 60,000
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 consumer groups: no price discrimination P Q Db MRb 70 Dg MRg
Background image of page 10
Two Consumer Groups No Price Discrimination P Q Db MRb 70 Dg MRg D-total MR-total
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Two Consumer Groups: No Price Discrimination P Q Db MRb 70 Dg MRg D-total MR-total MC
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/16/2011 for the course ECN 100A taught by Professor Parman during the Winter '09 term at UC Davis.

Page1 / 38

econ100_winter2010_lecture16_topost - Third Degree Price...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online