204_summer_2009_lecture_19

204_summer_2009_lecture_19 - University of Toronto...

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Unformatted text preview: University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 19 1 S. Ajaz Hussain. sayed.hussain@utoronto.ca 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. sayed.hussain@utoronto.ca 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. sayed.hussain@utoronto.ca 3 Consumer Surplus S. Ajaz Hussain. sayed.hussain@utoronto.ca Q P Demand onsumer Surplus = price youre 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. sayed.hussain@utoronto.ca 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. sayed.hussain@utoronto.ca 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 .. .....
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204_summer_2009_lecture_19 - University of Toronto...

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