Lecture+20

# Lecture+20 - Announcements HW for ch9 due THURSDAY night HW...

This preview shows pages 1–11. Sign up to view the full content.

Announcements HW for ch9 due THURSDAY night. HW for ch 10 due Monday. Practice problems for MT2 are on Scholar. I will post all iClicker questions after Monday’s class. We won’t get through all these slides today. 1 of 38

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

View Full Document
Monopolies While not all monopolists make profit, it is possible (and indeed likely) for a monopolist to make positive profits year after year. Is it possible for a monopolist to make even more profit than we’ve seen so far? Yes, if it can price discriminate. 2 of 38
3 of 38 PRICE DISCRIMINATION price discrimination Charging different prices to different buyers. perfect price discrimination Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit. Also called “ First Degree price discrimination.

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

View Full Document
Price discrimination and consumer surplus Remember our Gatorade example: What if the 7-11 owner could charge you \$4 for the first Gatorade, \$2 for the second, and \$1 for the third? Then he could make \$7 off of you rather than \$3 (what he earned by charging you \$1 each for all 3) By doing this, he could take ALL your consumer surplus Consumer Surplus 0 1 2 3 4 5 0 1 2 3 4 Q P Pm = 1
5 of 38 PRICE DISCRIMINATION Price Discrimination

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

View Full Document
Perfect Price Discrimination 6 of 38 Price Discrimination This firm would have made this rectrangle of profits without price discrimination if it can only charge a single price, and output will be restricted to Qm Quantity \$ MR D = AR S = MC = ATC C.S. that goes to Monopolist Profit under PD Pm Q m Q pd
Price Discrimination While perfect or “first degree” price discrimination is the best for the firm, it is almost impossible to do. Most of the time, firms do not know how much someone is willing to pay for a good. There are other types of price discrimination that are easier to enact. 7 of 38

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

View Full Document
Price Discrimination Second Degree Price Discrimination occurs when firms charge different prices based on unobservable consumer attributes. By pricing in strategic ways, firms let consumers “self-select” into groups based on their willingness to pay. Example 1: Costco or Sam’s Club – these firms extract some consumer surplus by charging membership fees that allow you to buy large quantities for cheap. Example 2: Quantity discounts. 8 of 38
Membership fees 9 of 38

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

View Full Document
Price Discrimination Third Degree Price Discrimination occurs when firms charge people different prices based on observable consumer attributes. These factors may indicate, in some way, the consumers’ willingness to pay. Example: Cheaper movie tickets for students or seniors. Firms know that these groups have less income so the have a different demand curve than working people. So the smart firm charges them less in an effort to maximize profits.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern