Eco 11-7 - Econ Notes 11/7/07 1. Price Discrimination a....

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Econ Notes 11/7/07 1. Price Discrimination a. Perfect Discrimination i. Every person pays their own marginal value for the product ii. The Demand curve is equal to the marginal revenue curve 1. All consumer surplus is subtracted and given to the business b. Ordinary discrimination i. Businesses attempt to divide the market c. Multi-part pricing i. 2 items are priced; the price of one is set to take up the consumer surplus of the other. ii. This is more effective than ordinary discrimination, but isn’t always used because it may not capture the whole market d. Tie-In Sales i. Exmp: movie theater 1. you pay to get in 2. once you’re in, prices are ridiculous for snacks 3. 2 types of people go to movies a. The people that are there for a “night out” i. Willing to pay more b. The people that are just there to see a movie 4. Type A may be willing to pay up to $12 5. Type B may be WTP (willing to pay) up to $5 6. If the firms charge $6, Type B won’t go 7. If the firms charge $5, both types are willing to go
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This note was uploaded on 04/07/2008 for the course ECO 2302 taught by Professor Smith during the Spring '08 term at University of Texas at Dallas, Richardson.

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Eco 11-7 - Econ Notes 11/7/07 1. Price Discrimination a....

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