14_01_lec26

# 14_01_lec26 - 10 9 8 A 0 1 2 3 4 5 6 7 8 9 0 2 3 4 5 6 7...

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Unformatted text preview: 10 9 8 A 0 1 2 3 4 5 6 7 8 9 0 2 3 4 5 6 7 Quantity Price 1 Q 1 D 2 1 A 2 MC Q D 2 10 1 Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 1 1 Two-Part Tariff 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 19, 2007 Lecture 26 Pricing and Monopolistic Competition Outline 1. Chap 11: Two-Part Tariff 2. Chap 11: Bundling 3. Chap 12: Monopolistic Competition 1 Two-Part Tariff When there are two consumers. Consumer 1 has higher demand than consumer 2. If setting P = MC , consumer 1 consumes Q 1 units and consumer 2 consumer Q 2 units. A 1 is consumer 1s consumer surplus, and A 2 is consumer 2s consumer surplus. Assume that 2 A 2 > A 1 . Then the maximum entry fee the firm can charge is A 2 . If more than A 2 is charged, consumer 2 would not consume. Figure 1: Entry Fee of Two Consumers. Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 2 1 Two-Part Tariff Now consider the case that price is higher or lower than the marginal cost. If setting P > MC, T = A 2 , we have 1 = A 2 + Q 1 ( P MC ) = A 2 + C, and 2 = A 2 + Q 2 ( P MC ) = A 2 B, thus = 1 + 2 = 2 A 2 + C B. Because C > B (see Figure 2), > 2 A 2 ....
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## This note was uploaded on 11/18/2011 for the course ECON 14.01 taught by Professor Pindyck during the Fall '08 term at MIT.

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14_01_lec26 - 10 9 8 A 0 1 2 3 4 5 6 7 8 9 0 2 3 4 5 6 7...

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