{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

econ100_winter2010_lecture16_topost

# econ100_winter2010_lecture16_topost - Third Degree Price...

This preview shows pages 1–14. Sign up to view the full content.

Third Degree Price Discrimination P Q D2 MR2 MRT MC MR1 MRT = MC Q1 Q2 P1 P2

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

View Full Document
Third Degree Price Discrimination Constant MC simplifies things P Q D2 MR2 MRT MC MR1 MRT = MC Q1 Q2 P1 P2
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?

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

View Full Document
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
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

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

View Full Document
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
Q b = 140,000 - 2000P Q g = 100,000 5000P Q = 240,000 -7000P, OR P = 34.28 - .00014Q MR = 34.28 - .00028Q = 10

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

View Full Document
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
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

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

View Full Document
2 consumer groups: no price discrimination P Q Db MRb 70 Dg MRg
Two Consumer Groups No Price Discrimination P Q Db MRb 70 Dg MRg D-total MR-total

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

View Full Document
Two Consumer Groups: No Price Discrimination P Q Db MRb 70 Dg MRg D-total MR-total MC
3 rd Degree PD w/ Increasing MC Need to be more careful when MC is not

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}