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Pricing To Capture Surplus Value
Capturing Surplus:
By applying the price discrimination.
Price discrimination:
the practice of charging consumers different
prices for the same good or service.
Price Discrimination:
There are 3 types of price discrimination:
1. First degree price discrimination.
2. Second degree price discrimination.
3. Third degree price discrimination.
First Degree Price Discrimination:
The practice of attempting to price each unit at
the consumer’s reservation price.
i.e. The consumer’s maximum willingness to
pay for that unit.
Second Degree Price Discrimination:
The practice of offering consumers a quantity
Third Degree Price Discrimination:
The practice of charging different uniform
prices to different consumer groups or
segments in a market.
Monopoly With Uniform Pricing
Figure 12.3. Page 449
Price monopoly = Pm
Output monopoly = Qm
Producer surplus = G + H + K + L
Consumer surplus = E + F
Deadweight loss = I + N
Suppose a monopolist has MC = 2, and faces
the demand curve P = 20 – Q,
there is no fixed cost
Pm = ?
Qm = ?
PS = ?
CS = ?