{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

204_summer_2009_lecture_19

204_summer_2009_lecture_19 - University of Toronto...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

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

Unformatted text preview: University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 19 1 S. Ajaz Hussain. [email protected] Last Time Pricing under uncertainty The optimal price rule ¢ A practical rule for optimal prices ¢ What not to consider when setting prices ¢ The cost plus rule re ‐ examined ¢ Basis for market segmentation The optimal markup rule ¢ A practical rule for optimal markups ¢ Optimal markups from financial statements ¢ A look at Apple Computers S. Ajaz Hussain. [email protected] 2 Today ¡ Consumer Surplus = Money on the Table ¡ Capturing consumer surplus ¢ 1 st degree price discrimination ¢ Prices on a customer by customer basis Examples? ¢ 2 nd degree price discrimination ¢ Prices by volume (“block prices”) Examples? ¡ Next Time: ¢ 3 rd degree price discrimination ¢ Prices by segment ¢ Bundling ¢ Prices for bundled vs. individual products ¢ Intertemporal price discrimination S. Ajaz Hussain. [email protected] 3 Consumer Surplus S. Ajaz Hussain. [email protected] Q P Demand onsumer Surplus = price you’re willing to pay – price you actually paid Consumer Surplus = Money on the Table Suppose the price is → $100 5 1 Willing to pay this price for 1 st unit 2 Willing to pay this price for 2 nd unit 4 ¡ P = 1,466 – 4.83Q ¡ C = 197,820 + 28Q ¡ Profit maximization where: ¢ MR = MC → Q = 148.9 → P ≈ $747 Interpret ¡ Contribution = Gross ∏ = (P ‐ AVC)Q ¢ Gross ∏ = (747 ‐ 28)(149) ¢ Gross ∏ ≈ $107,131 ¡ Can do better through price s discriminatio n Consumer Surplus in PTC S. Ajaz Hussain. [email protected] 5 $ q R $ q Demand MR = 1466 – 9.66Q TVC = 28Q MC 28 1466 747 CS Extracting CS: 1 st Degree P Discrimination ¡ Instead of charging uniform price of $747 for 149 hours, consider charging the maximum willingness to pay for each unit In PTC example: P = 1,466 – 4.83Q S. Ajaz Hussain. [email protected] 6 Quantity Max WTP = 1,466 ‐ 4.83Q 1 1,466 ‐ 4.83(1) = 1,461.17 2 1,466 ‐ 4.83(2) = 1,456.34 3 1,466 ‐ 4.83(3) = 1,451.51 .. .....
View Full Document

{[ snackBarMessage ]}

Page1 / 24

204_summer_2009_lecture_19 - University of Toronto...

This preview shows document pages 1 - 7. Sign up to view the full document.

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