Th3.4: Third Degree Price Discrimination Flashcards
What is third degree price discrimination?
when monopolists charge different prices to different people for the same good or service
Give an example of this
different times of the day e.g peak and off-peak travel
What three things must happen in order for price discrimination to occur?
firm must be able to clearly separate the market into groups of buyers
customers must have different elasticities of demand
must be able to control supply and prevent buyers from the expensive market from buying in the cheaper market
Refer to PP
Look at Graph 40. What does the diagram show?
the separate markets for separate groups - those with inelastic demand and those with elastic demand
Refer to PP
Look at Graph 40. What does the diagram assume?
the industry is a constant cost industry, in order to make it clearer
Refer to PP
Look at Graph 40. The firm produces where MC = MR in each market. Therefore, in the inelastic market they produce at…
produce at Q1P1 and make supernormal profit of the orange area
Refer to PP
Look at Graph 40. The firm produces where MC = MR in each market. Therefore in the elastic market they produce at…
Q2P2 and make supernormal profit of the purple area
Refer to PP
Look at Graph 40. The firm produces where MC = MR in each market. Therefore in the combined market they produce at…
Q3P3 and make supernormal profit of the yellow area
Refer to PP
Look at Graph 40. This shows that by price discriminating and having two separate markets…
the inelastic and elastic market, rather than a combined market, the firm can make higher profits - the orange + purple area is bigger than the yellow
Draw each diagram three times!!
please i know i know
