Q18DiscriminationRegulation

Q18DiscriminationRegulation - 72 Price Discrimination first...

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1 efficient, but all surplus PS Sell 3rd unit at $3 Sell 2nd unit at $5 Sell 1st unit at $9 Price Discrimination Price Discrimination first degree --- perfect price discrimination different price (MB) for each unit sold 0 2 4 6 8 10 012345 Quantity ($) D MC sell more if p>MC Monopolist’s Revenue two-part tariff price at MC require payment of surplus generated 72 Price Discrimination Price Discrimination third degree different prices in different markets Q ($) D 1 MC Q ($) MR 1 D 2 MR 2 Market 1: Relatively Inelastic Demand Market 2: Relatively Elastic Demand MR=MC in each market price determined by demand price higher in market where demand less elastic Charge relatively higher price in market 1 lower price in market 2 Charge relatively 72 transaction point determined by supply at price ceiling “price controls produce shortages, black markets, and reduced quality” Q D > Q S helps demanders when equilibrium price “too high” price ceiling -maximum ±price Price Controls S D Quantity Price (per unit) Q E E P E Price ceiling upward pressure on price; price cannot rise excess demand or shortage D Q Q S shortage 73
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2 Price Ceiling P * Quantity ($) Q M D MR MC P M Unregulated Monopolist
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Q18DiscriminationRegulation - 72 Price Discrimination first...

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