econ100_winter2010_lecture16_topost

econ100_winter2010_lecture16_topost - Third Degree Price...

This preview shows pages 1–13. 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
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
Ask a homework question - tutors are online