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AP Economics

Learn about price discrimination in monopolies and its impact on consumer prices, economic profits, and government policies. Explore examples like airline ticket pricing and the "Slam Grand" breakfast to grasp the complexities and advantages of perfect price discrimination.

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AP Economics

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  1. AP Economics Mr. Bernstein Module 63: Price Discrimination December 3, 2013

  2. AP EconomicsMr. Bernstein Monopolies: • Reduce output and raise prices to consumers, relative to Perfectly Competitive firms • Earn an economic profit, unlike Perfectly Competitive firms in Long Run equilibrium • By producing at output below P = MC, loss of total welfare exists (deadweight loss) • As a result, governments may adopt policies to regulate monopolies

  3. AP EconomicsMr. Bernstein Price Discrimination • Charging different customers different prices • Example: Airline tickets • Not necessarily based on volume • Complicates the analysis relative to a single Pm

  4. AP EconomicsMr. Bernstein Example: The “Slam Grand” breakfast • Assume only 2 market segments – students and senior citizens • Diner’s MC = $2 • 100 sr. citizens will pay $4 • 100 students will pay $8 Students have lower price elasticity – Why?

  5. AP EconomicsMr. Bernstein Perfect Price Discrimination • Each customer is charged exactly their maximum willingness to pay • The final unit is sold where P = MC so there is no deadweight loss

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