Monopolist chooses to produce q1 pa charges this

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Monopolist chooses to produce Q1 Pa Charges this customer price Pa Pb Charges this customer price Pb Consumers have zero surplus under perfect price discrimination Demand = MR demand Marginal cost Marginal cost MR P1 Q1 Consumer surplus under usual monopoly Q2 Consumer surplus under perfect price discrimination Firm is better off under perfect price discrimination Demand = MR demand Marginal cost Marginal cost MR P1 Q1 Producer surplus under usual monopoly Q2 Producer surplus under perfect price discrimination Value of benefit to firm of price discrimination exceeds loss to consumers Demand = MR demand Marginal cost Marginal cost MR P1 Q1 Total surplus under usual monopoly Q2 Total surplus under perfect price discrimination There is no deadweight social loss from perfect price discrimination Demand = MR demand marginal cost supply Total surplus under perfect competition Q2 Total surplus under perfect price discrimination Q1 P1
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3 Price discrimination is hard to implement: (1) It’s against the law Clayton Act of 1914: “It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality” Price discrimination is hard to implement: (1) It’s against the law (2) All customers will try to buy at the lowest price (3) Firm doesn’t know each customer’s maximal price (4) Firm must be able to prevent resale Nevertheless, many firms find ways to implement partial price discrimination: (1) Each passenger on this flight may have paid a different price (2) Sales and promotions Price per ounce of Peter Pan peanut butter at a supermarket in Chicago (3) Discounts for seniors, students, children, …
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4 Chapter 9: Monopoly, Oligopoly,
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