FECON 4.21
Terms
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copy deck
- third degree price discrimination
- is the situation where a firm can sell to different concumers (possibley in different markets) at different prices. Profit maximization requires marginal revenue in each market equals to marginal cost. This leads to the inverse demand elasticity rule, EX: movie ticket prices, dry cleaners, best price policy, coupons, and senior citizen, student and group discount.
- inverse demand elasticity rule
- requires a firm to sell a product to consumers with higher own-price demand elasticity at a lower price and to consumers with lower own- price demand elasticity at a higher price. EX signapore $20 a copy, demand is elastic charge higher only sell one copy. Sell lots of copies sell at lower price. In US copyright laws benefit US corporation so charging higher price for copy is able to happen
- There are three examples where firms with market power can lead to efficient outcome by extracting all consumer surpluses to become monoploy profits:
- 1.first degree price discriminating monopolist: every unit at a different EX buying airplane tickets price.2. two part tariff monopolist: membership fee plus price per unit EX buying membership at Costco 3.all ornothing contract monopolist: EX Buying items at Costco