Price discrimination
Download
1 / 39

Price discrimination - PowerPoint PPT Presentation


  • 473 Views
  • Updated On :

Price discrimination. A producer is able to charge consumers , who have different tastes and preferences, different prices for the same good. Price discrimination. Conditions or Assumptions: When producers have market power and They sell a good that cannot be resold.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Price discrimination' - rowa


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Price discrimination l.jpg

Price discrimination

A producer is able to charge consumers, who have different tastes and preferences, different prices for the same good


Price discrimination2 l.jpg

Price discrimination

Conditions or

Assumptions:

When producers have market power

and

They sell a good that cannot be resold


Always assume the short run and profit maximizing output unless directed otherwise l.jpg
Always assume the short-run and profit-maximizing output, unless directed otherwise

  • A perfectly competitive firm would produce the output at which price is equal to

    • A) Average cost

    • B) Marginal cost

    • C) Marginal revenue

    • D) Average revenue


Always assume the short run and profit maximizing output unless directed otherwise4 l.jpg
Always assume the short-run and profit-maximizing output, unless directed otherwise

  • A perfectly competitive firm would produce the output at which price is equal to

    • A) Average cost

    • B) Marginal cost

    • C) Marginal revenue

    • D) Average revenue


Slide5 l.jpg


Slide6 l.jpg


Using the table you created l.jpg
Using the table you created is equal to

  • Prove that consumer surplus (*calculated in whole dollar increments) at a price of $17 is a total of $6.

    • (hint): the first consumer, willing to pay $20, has a surplus of $3

    • *this method uses addition of incremental whole dollar amounts rather than the geometric formula for a triangle (($21-17)*4)/2


Slide8 l.jpg

$20 is equal to

Whole dollar amounts of individual consumer surplus at a market price of $17

3+2+1=6 or 2x3=6

3

2

1

$17

$14

$10

AR, (D)

0

4

11


Using the table you created9 l.jpg
Using the table you created is equal to

At a price of $17 consumer surplus (*calculated in whole dollar increments) is a total of $6.

  • (hint): the first consumer, willing to pay $20, has a surplus of $3

  • The triangle area formula works if you use the first price ($20) for the first whole unit (1) :

    • (($20-17)x4)/2 = ($3x4)/2 = $6 or

      (20-17)+(19-17)+(18-17) = 6

      3 + 2 + 1 = 6

      3 x 2 = 6


Assume the average costs and marginal costs are constant and equal to 14 l.jpg
Assume the average costs and marginal costs are constant and equal to $14.

  • If Pat chose to produce the perfectly competitive output and charge the perfectly competitive price; she will charge, supply, and generate whole dollar consumer surplus in the following amounts:

    price output consumer surplus

  • $17 4 $6

  • $14 7 $49

  • $14 7 $21

  • $11 10 $110


Slide11 l.jpg

$20 equal to $14.

Whole dollar amounts of individual consumer surplus at a market price of $14

(6+5+4+3+2+1)= 21 or 3½ x6=21

6

$17

5

4

3

2

AC, MC, MR, AR

Firm DEMAND

The competitive firm would produce output, where P=MC

(P=MR) because

MR is equal to Demand for the competitive firm

1

$14

$10

AR, (D)

industry

0

4

7

11


Assume the average costs and marginal costs are constant and equal to 1412 l.jpg
Assume the average costs and marginal costs are constant and equal to $14.

  • If Pat chose to produce the perfectly competitive output and charge the perfectly competitive price; she will charge, supply, and generate consumer surplus in the following amounts:

    price output consumer surplus

  • $17 4 $6

  • $14 7 $49

  • $14 7 $21

  • $11 10 $110


Assume the average costs and marginal costs are constant and equal to 1413 l.jpg
Assume the average costs and marginal costs are constant and equal to $14.

  • If Pat chose to produce the monopoly output and charge the monopoly single price; she will charge, supply, and generate whole dollar consumer surplus in the following amounts:

    price output consumer surplus

  • $17 4 $6

  • $14 7 $49

  • $14 7 $21

  • $11 10 $110


Slide14 l.jpg

P equal to $14.

The monopolistic firm would produce output, where MR=MC

(P>MR)

because MR lies below demand

$20

$17

The competitive firm would produce output, where P=MC

(P=MR)

because MR is equal to D

AC, MC

$14

$10

price

AR, (D)

MR

Q

0

4

7

11


Slide15 l.jpg

P equal to $14.

The monopolistic firm would produce output, where MR=MC

(P>MR)

because MR lies below demand

$20

1

$17

The competitive firm would produce output, where P=MC

(P=MR)

because MR is equal to D

AC, MC

$14

$10

price

AR, (D)

MR

Q

0

4

7

11


Assume the average costs and marginal costs are constant and equal to 1416 l.jpg
Assume the average costs and marginal costs are constant and equal to $14.

  • If Pat chose to produce the monopoly output and charge the monopoly single price; she will charge, supply, and generate whole dollar consumer surplus in the following amounts:

    price output consumer surplus

  • $17 4 $6

  • $14 7 $49

  • $14 7 $21

  • $11 10 $110


Slide17 l.jpg

Assume the average costs and marginal costs are constant and equal to $14. Further assume that Pat knows the different tastes and preferences of all consumers and the conditions that allow price discrimination apply

  • How many tattoos will Pat supply?

  • At what price will she charge for the tattoos?

    • A) $20, B)$19, C)$18, D)$17, E)$16, F)$15, G)$14

  • What consumer surplus will be generated?


Slide18 l.jpg

$20 equal to $14. Further assume that Pat knows the different tastes and preferences of all consumers and the conditions that allow price discrimination apply

The price discriminating monopolistic firm can capture all whole dollar consumer surplus as profit, by charging each consumer what he is willing and able to pay for the same good

(6+5+4+3+2+1)= 21 or 3½ x6=21

6

$17

5

4

3

2

1

AC, MC

$14

$10

AR, (D)

MR

0

4

7

11


Slide19 l.jpg

Assume the average costs and marginal costs are constant and equal to $14. Further assume that Pat knows the different tastes and preferences of all consumers and the conditions that allow price discrimination apply

  • How many tattoos will Pat supply?

    7

  • At what price will she charge for the tattoos?

    A) $20, B)$19, C)$18, D)$17, E)$16, F)$15, G)$14

  • What consumer surplus will be generated?

    0


Slide20 l.jpg

Assume the average costs and marginal costs are constant and equal to $14 for all firms, and the conditions that allow price discrimination apply

  • Describe the profit situation for the perfect competitor, the discriminating monopoly, and the non-discriminating monopoly.


Slide21 l.jpg

Assume the average costs and marginal costs are constant and equal to $14 for all firms, and the conditions that allow price discrimination apply

  • Describe the profit situation for the perfect competitor, the discriminating monopoly, and the non-discriminating monopoly.

  • The profits for the discriminating monopoly will be highest, the perfect competitor will be lowest, and the non-discriminating monopoly will lie in between


Slide22 l.jpg

$20 equal to $14 for all firms, and the conditions that allow price discrimination apply

The price discriminating monopolistic firm can capture all whole dollar consumer surplus as profit, by charging each consumer what he is willing and able to pay for the same good

(6x7)/2 = 21

(6+5+4+3+2+1)= 21 or 3½ x6=21

6

5

$17

Non-discriminating monopoly profit

$3 x4 =$12

2

1

AC, MC

$14

$10

AR, (D)

MR

0

4

7

11


The effects of price discrimination some typical free response questions l.jpg
The effects of price discrimination- equal to $14 for all firms, and the conditions that allow price discrimination apply some typical free response questions

  • What happens to consumer surplus if a firm successfully price discriminates?

  • What happens to a firm’s profits if it successfully price discriminates?

  • What happens to the quantity supplied by a successful price discriminating firm compared with a non-price discriminating firm?

  • How does the quantity supplied by a successful price discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?

  • How does price discrimination affect economic efficiency?



What happens to consumer surplus if a firm successfully price discriminates25 l.jpg

What happens to consumer surplus if a firm successfully price discriminates?

If a firm successfully price discriminates, consumer surplus decreases



What happens to a firm s profits if it successfully price discriminates27 l.jpg

What happens to a firm’s profits if it successfully price discriminates?

If a firm successfully price discriminates, its profits increase


Slide28 l.jpg

What happens to the quantity supplied by a successful price discriminating firm compared with a non-price discriminating firm?


Slide29 l.jpg

What happens to the quantity supplied by a successful price discriminating firm compared with a non-price discriminating firm?

the quantity supplied by a successful price discriminating firm is greater than a non-price discriminating firm


Slide30 l.jpg

How does the quantity supplied by a successful price discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?


Slide31 l.jpg

How does the quantity supplied by a successful price discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?

the quantity supplied by a successful price discriminating firm is the same as the quantity supplied by firms in a perfectly competitive industry


How does price discrimination affect economic efficiency l.jpg

How does price discrimination affect economic efficiency? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?


How does price discrimination affect economic efficiency33 l.jpg

How does price discrimination affect economic efficiency? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?

price discrimination improves economic efficiency

because output is increased and price is closer to marginal cost


What are some real examples of price discrimination l.jpg
What are some real examples of price discrimination? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?


What are some real examples of price discrimination35 l.jpg
What are some real examples of price discrimination? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?

  • Charging different airline passengers different prices for the same ticket

  • Providing discounts on cars by negotiating with each customer on an individual basis

  • Providing college scholarships for low-income students but not wealthier ones

  • Corporate or business discounts but not personal or household

  • Senior citizen discounts


What factors make price discrimination easier l.jpg
What factors make price discrimination easier? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?


What factors make price discrimination easier37 l.jpg
What factors make price discrimination easier? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?

  • An inelastic demand curve

  • The product cannot be resold easily

  • Categories of customers can be separated in the market


Is price discrimination good or bad l.jpg
Is price discrimination good or bad? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?


Is price discrimination good or bad39 l.jpg
Is price discrimination good or bad? discriminating firm compare with quantity supplied by firms in a perfectly competitive industry?

  • On the negative side,

    • it decreases consumer surplus while it increases a firm’s profits

  • On the positive side,

    • It increases output

    • More consumers will now buy the product

    • It results in a more efficient output,

      • allocation of resources