chapter 21: monopoly behavior

Question 1

Price discrimination why in monoply?

Answer 1

When a monopolist raises its price it loses some, but not all, of its customers. A monopolist is inefficient (produces too little) because producing more implies the price has to be lower. This is not necessarily the case if a monopolist can sell different units of outputs at different prices or price discriminate.

Question 2

First-degree or perfect price discrimination:

Answer 2

The monopolist sells different units of output for different prices and these prices may differ from person to person.

each unit of the good is sold to the
individual who values it most highly, at the maximum price that this individual
is willing to pay for it (at a take it or leave it price).

Question 3

definition of price discrimination

Answer 3

(3 degrees: First-degree or perfect price discrimination, Second-degree price discrimination, Third-degree price discrimination)

Selling different units of output at different prices is called price .discrimination.

Question 4

Second-degree price discrimination

Answer 4

The monopolist sells different units of output for different prices, but every individual who buys the same amount of the good pays the same price.

Price depends on how much you buy. By offering price quatity packages and give the customer the choice to self select.

Question 5

Third-degree price discrimination:

Answer 5

The monopolist sells output to different people for different prices, but every unit of output sold to a given person sells for the same price.

different prices for different people except for specific groups (eg, students, seniors discount, …) pay the same as people in that group.

Question 6

Bundling
(def + why?)

Answer 6

Firms often sell goods in bundles: packages of related goods offered for sale together.
* Bundling can be due to cost savings.
* Bundling can be due to complementarities among the goods involved.
* There can also be reasons involving consumer behavior.

Question 7

A two-part tariff:

Answer 7

An amusement park can set one price for tickets to get into the park and another price for the rides.
The price that people are willing to pay to get into the park depends on the price that they have to pay for the rides.