1. Bellringer quiz
1. Which market structure is the best for consumers?
2. Which market structure is best for producers?
3. Which market structure is shown in these graphs?
4. What would you advise this firm to do?
2. How could the firm make even MORE
PROFIT?
• Remember MR < Price and they are the ONLY
FIRM!
4. Price Discrimination
• Discrimination: treating people differently based
on some characteristic, e.g. race or gender.
• Price discrimination: selling the same good
at different prices to different buyers.
• Examples (3 min)
• The characteristic used in price discrimination
is willingness to pay (WTP):
– A firm can increase profit by charging a higher price to
buyers with higher WTP.
8. Perfect Price Discrimination vs.
Single Price Monopoly
Here, the
Price
monopolist charges
the same price (PM)
PM
to all buyers.
A deadweight loss
MC
Monopoly
results.
profit
Consumer
surplus
Deadweight
loss
D
MR
QM
Quantity
9. Perfect Price Discrimination vs.
Single Price Monopoly
Here, the monopolist
produces the competitive Price
quantity, but charges each
buyer his or her WTP.
This is called perfect price
discrimination.
The monopolist captures all MC
CS
as profit.
But there’s no DWL.
“Price discriminating
monopolist”
Monopoly
profit
D
MR
Quantity
Q
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10. Price Discrimination in the Real World
• In the real world, perfect price discrimination
is not possible:
– No firm knows every buyer’s WTP
– Buyers do not announce it to sellers
• So, firms divide customers into groups
based on some observable trait
that is likely related to WTP, such as age.
• BUT IN 2013, THINGS HAVE CHANGED!
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