Perfect Price Discrimination Example
Suppose there is a monopolist facing inverse demand of $p=100-10Q$ with marginal cost is $MC=10+10Q$. Assume there is no fixed cost.
- What is the profit-maximizing price and quantity, using the standard monopoly approach?
- What is consumer surplus, profit and deadweight loss?
- Now suppose the firm practices perfect price discrimination. What is consumer surplus, profit, and deadweight loss?
Try to solve this yourself and then watch the following video for a walkthrough of how to do it.
Price Discrimination by Market Segmentation Example
Suppose students and adults have different demand for basketball tickets to the local college team. Demand from adults is $Q_a=5000-100p_a$, while demand from students is $Q_s=10,000-100p_s$. The marginal cost for each ticket is constant at $10.
- What should the stadium charge to students? What should it charge to adults?
- How many tickets does the stadium sell to students? How many to adults?
- What is the total profit the stadium makes?
Now suppose the stadium can no longer price discriminate and must offer the same price to everyone.
4. What price should it charge?
5. What are its profits?
Hint: The demand for tickets, when you can no longer price discriminate is $Q=Q_a+Q_s$, where each demand function has the same prices: $p_a=p_s=p$
Try the above problem on your own first and then watch the video below for a walk-through of how to do this kind of problem.
Price Discrimination by Market Segmentation: Another Example
Suppose tickets for a broadway musical based in New York is on tour in Florida. The price elasticity of demand in the two markets differs. In New York, where there are many options for theater, the absolute value of the elasticity is 2.0. In Florida is 1.2.
If the musical price discriminates, what is the price of a ticket in New York, relative to Florida?
Try to solve this yourself, then watch the following video for a walkthrough.
Price Discrimination by Self Selection
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