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Price Discriminating Monopoly
Mike FladlienMuscatine High School
Pure Monopoly
What is the profit maximizing price?
What is the profit maximizing quantity?
How much is total revenue?
How much is total cost?
How much is profit per unit?
Area of dead-weight loss>
Area of consumer’s surplus?
Price Discrimination
In order to price discriminate:•Must be a monopoly•No resale of items•Must be able to discriminate among buyers with the highest willingness to play
Assume that the firm can sell one item at $4, another item at $3, another item at $2, and another item at $1.
How much is total revenue?How much is total cost?How much is profit?Where is the marginal revenue curve?
Price Discrimination
If the firm were a perfect competitor, what price would it sell its output at?
If the firm were a perfect competitor, how many units would it sell?
What area represents the dead weight loss?
Price Discriminating Examples
Examples of price discrimination There are numerous good examples of discriminatory
pricing policies. We must be careful to distinguish between discrimination (based on consumer's willingness to pay) and product differentiation - where price differences might also reflect a different quality or standard of service.
Some examples worth considering include: Cinemas and theatres cutting prices to attract younger and
older audiences Student discounts for rail travel, restaurant meals and
holidays Car rental firms cutting prices at weekends Hotels offering cheap weekend breaks and winter discounts
