Price discrimination when a monopoly can differentiate among buyers.

1. Price Discriminating
Monopoly
Mike Fladlien
Muscatine High School

2. Pure Monopoly
What is the profit
maximizing price?
What is the profit
maximizing quantity?
How much is total
revenue?
How much is total
cost?
How much is profit
per unit?
Area of dead-weight
loss>
Area of consumer’s
surplus?

3. Price
Discrimination
In order to price discriminate:
•Must be a monopoly
•No resale of items
•Must be able to discriminate
among buyers with the
highest willingness to play
Assume that the firm can sell
one item at $4, another item
at $3, another item at $2, and
another item at $1.
How much is total revenue?
How much is total cost?
How much is profit?
Where is the marginal
revenue curve?

4. Price
Discrimination
If the firm were a perfect
competitor, what price would
it sell its output at?
If the firm were a perfect
competitor, how many units
would it sell?
What area represents the
dead weight loss?

5. Price Discriminating Examples
 Examples of price discrimination
 There are numerous good examples of discriminatory
pricing policies. We must be careful to distinguish between
discrimination (based on consumer's willingness to pay)
and product differentiation - where price differences might
also reflect a different quality or standard of service.
 Some examples worth considering include:
 Cinemas and theatres cutting prices to attract younger and
older audiences
 Student discounts for rail travel, restaurant meals and
holidays
 Car rental firms cutting prices at weekends
 Hotels offering cheap weekend breaks and winter discounts

6. Conclusion
mfladlien@gmail.com