Microeconomics price discrimination

These factors may include: Thus the marginal opportunity cost would be 1 house for each additional computer program. Since this would give us only 12 units of output, we need to employ Microeconomics price discrimination resources.

We also assume production efficiency meaning that we are unable to produce more of one output without producing less of the other output.

For example price discrimination is important for train companies who offer different prices for peak and off peak. Left to its own devices, a profit-seeking natural monopoly will produce where marginal revenue equals Microeconomics price discrimination costs. Since the firm is the only buyer, then obviously it will be large enough to affect the wage rate.

There are three types of price discrimination — first-degree, second-degree, and third-degree price discrimination. Examples of price discrimination abound. Given all this, tourists are likely to have relatively more price elastic demand than business travelers for a particular flight.

Practice Explain how the Production Possibilities Curve reflects scarcity and opportunity cost. A key feature of capitalism is that individuals act in their own self-interest as they seek to improve their well-being.

Market shares[ edit ] As with collusive conduct, market shares are determined with reference to the particular market in which the company and product in question is sold. Thus, airlines charge much lower fares for trips that extend through a weekend than for trips that begin and end on weekdays.

He can gather 3 fish per hour or 2 coconuts per hour. They have options, of course, but the range of options is likely to be more limited than the range of options facing tourists. In a market economy, consumers signal to producers the types of goods and services they require, desire and are willing to pay for.

Premium pricing[ edit ] For certain products, premium products are priced at a level compared to "regular" or "economy" products that is well beyond their marginal cost of production. If they only produced fish, they could still only produce 7 fish per hour, and both gathering coconuts would allow them to gather 8 per hour.

The lowest yet market share of a company considered "dominant" in the EU was Note that the resources still exist so the PPC has not changed, we are just not using all of resources that we have.

As discussed earlier, a firm must compare the marginal revenue product to the marginal resource cost of using the resource. Unfortunately, central planners with the best intentions may not be able to represent each individuals preferences in their choices.

For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Note In the above example we are assuming that the price at which consumers in the relatively elastic sub-market students, for example, looking to travel into a major city are prepared to enter the market is lower than those in the relatively inelastic sub-market commuters, for example.

Benefits to groups of consumers If we look specifically at goods and services consumed by children, but where adults are needed to accompany them, it can be argued that charging children a much lower price enables families as a whole to benefit, and gain increased group utility. How to produce those goods and services.

Necessary conditions for successful discrimination Price discrimination can only occur if certain conditions are met. There will be administration costs in separating the markets, which could lead to higher prices.

An analysis by Francisco Alpizar, an economist with Gothenburg University in Sweden and CATIE, a tropical research institute in Costa Rica, suggests that Costa Rica should increase the degree to which it engages in price discrimination in pricing its national parks.

For example, assume on one acre of land Cain can produce lbs of potatoes or 2 lambs or some linear combination of the two productsand Abel can produce 50 lbs of potatoes or 4 lambs or some linear combination of the two products.

Price Discrimination

Also, firms can offer discounts in order to get consumer feedback on these trialled products, and on existing ones. If the market can be separated, the price and output in the relatively inelastic sub-market will be P and Q and P1 and Q1 in the relatively elastic sub-market.

For simplicity, we will assume that labor and capital are substitutes in production, meaning that there is not a certain amount of labor required to operate the capital.

As noted information about where a person lives postal codeshow the person dresses, what kind of car he or she drives, occupation, and income and spending patterns can be helpful in classifying.

Microeconomics Principles from University of Illinois at Urbana-Champaign. This course offers an introduction to the functions of individual decision-makers—both consumers and producers—within the larger economic system. Emphasis is on the nature. Professor Antonovics received her B.A.

from Brown University in and her Ph.D. in economics from the University of Wisconsin in Shortly thereafter, she joined the faculty in the Economics Department at the University of California, San Diego, where she has been ever since.

Price discrimination

In this video, we look at price discrimination and how when demand curves are different, it's more profitable to set different prices in different markets. Essential Micro Home. On-Line Review Course.

Mathematical Foundations.

Price Discrimination

Microeconomics is all about how individual actors make decisions. Learn how supply and demand determine prices, how companies think about competition, and more! We hit the traditional topics from a college-level microeconomics course.

Economic profit vs. accounting profit. Average total cost (ATC) and marginal cost (MC). Marginal product of labor (MPL). Price discrimination.

Microeconomics price discrimination
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Essential Microeconomics