"Price Discrimination

"Price Discrimination - Price Discrimination...

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Price Discrimination Public Policy and Business Spring 2010 ABC Widget Company sells widgets in two markets, Market A and Market B. Demands for its product in these markets are shown below. ABC has no fixed costs of production. What are the algebraic equations that represent D A and D B ? What are the inverse demand functions for these two markets: P A (Q A ) and P B (Q B )? Marginal Revenue Functions? Suppose ABC is able to separate these two markets and practice 3 rd Degree Price Discrimination , setting a different price in each market. If its marginal costs are $4 per widget what price will it charge in Market A? Market B? What will ABC’s profits be under 3 rd Degree Price Discrimination ? P P Q Q 0 0 100 500 400 300 200 100 500 400 300 200 25 5 5 15 10 25 20 10 15 20 D A D B MR B Market A
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Suppose ABC cannot prevent arbitrage between these markets. I.e., suppose it must charge the same price in both markets. Illustrate ABC’s market demand and marginal revenue schedule in the graph below:
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This note was uploaded on 04/12/2011 for the course ECON 415 taught by Professor Holland during the Spring '09 term at Purdue University-West Lafayette.

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"Price Discrimination - Price Discrimination...

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