ch25lec - Chapter 25 Monopoly Behavior By Rust, Cho, Juan...

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Chapter 25 Monopoly Behavior By Rust, Cho, Juan
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How Should a Monopoly Price? •S o f a r a m o n o p o l y h a s b e e n thought of as a firm which has to sell its product at the same price to every customer. This is uniform pricing. •C a n p r i c e - d i s c r i m i n a t i o n e a r n a monopoly higher profits? Types of Price Discrimination •1 s t - d e g r e e : E a c h o u t p u t u n i t i s sold at a different price. Prices may differ across buyers. •2 n d - d e g r e e : T h e p r i c e p a i d b y a buyer can vary with the quantity demanded by the buyer. But all customers face the same price schedule. E.g. bulk-buying discounts. •3 r d - d e g r e e : P r i c e p a i d b y buyers in a given group is the same for all units purchased. But price may differ across buyer groups. E.g., senior citizen and student discounts vs. no discounts for middle-aged persons
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First-degree Price Discrimination •E a c h o u t p u t u n i t i s s o l d a t a d i f f e r e n t p r i c e . Price may differ across buyers. •I t r e q u i r e s t h a t t h e m o n o p o l i s t c a n discover the buyer with the highest valuation of its product, the buyer with the next highest valuation, and so on.
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First-degree Price Discrimination p(y) y $/output unit MC(y) c y p y () c cc y ccc y py cc ccc Sell the th unit for $ Later on sell the th unit for $ Finally sell the th unit for marginal cost, $ c y p y . c cc y . cc ccc y .
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ch25lec - Chapter 25 Monopoly Behavior By Rust, Cho, Juan...

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