All Flashcards
How does price discrimination apply to airline tickets?
Airlines charge different prices for the same flight based on booking time and demand.
How does market segregation enable price discrimination?
It allows firms to identify groups with different price sensitivities and charge accordingly.
How does the 'no resale' condition affect price discrimination?
It prevents customers from buying low and selling high, undermining the price discrimination strategy.
How do universities use price discrimination?
By offering different tuition rates based on financial aid and scholarships.
How do car dealerships practice price discrimination?
By negotiating prices individually with each customer.
How does price discrimination affect consumer surplus?
It typically reduces or eliminates consumer surplus as the monopolist captures it as profit.
How does price discrimination affect producer surplus?
It increases producer surplus as the monopolist captures more of the consumer's willingness to pay.
How does perfect price discrimination achieve allocative efficiency?
By producing where P = MC, eliminating deadweight loss and maximizing total surplus.
How does price discrimination relate to market power?
Price discrimination requires market power because firms need to be able to influence prices.
How does price discrimination impact the quantity produced compared to a single-price monopoly?
Price discrimination typically leads to a higher quantity produced, approaching the socially optimal level.
Analyze the demand curve in perfect price discrimination.
The demand curve is also the marginal revenue curve (D=MR).
What does the area under the demand curve represent in perfect price discrimination?
Total Revenue for the price discriminating monopolist.
How is profit shown on a perfect price discrimination graph?
Area between the demand curve and the marginal cost curve up to the quantity produced.
What happens to consumer surplus in perfect price discrimination?
Consumer surplus is zero.
What happens to deadweight loss in perfect price discrimination?
Deadweight loss is eliminated.
How does the quantity produced compare to a single-price monopoly?
Quantity produced is higher, closer to the socially optimal level.
How is total cost represented on the graph?
A rectangle formed by ATC and the quantity produced.
How does the marginal cost curve behave in perfect price discrimination?
The marginal cost curve stays the same as in a regular monopoly.
What does the trapezoid under the demand curve represent?
Total revenue.
How does the producer surplus change compared to a regular monopoly?
Producer surplus increases significantly, capturing all consumer surplus.
What is price discrimination?
Selling the same product at different prices to different buyers.
What is a uniformly-pricing monopoly?
A monopoly that charges everyone the same price.
What is perfect price discrimination?
Charging each customer the maximum they're willing to pay.
Define Monopoly Power.
The ability of a firm to control the market and set prices.
What is market segregation?
Identifying and separating groups of consumers with different price sensitivities.
What is allocative efficiency?
Producing at the socially optimal level where P = MC.
Define Consumer Surplus.
The difference between what consumers are willing to pay and what they actually pay.
Define Producer Surplus.
The difference between the price producers receive and their marginal cost.
What is Deadweight Loss?
The loss of economic efficiency when the equilibrium is not Pareto optimal.
What is Marginal Revenue (MR)?
The additional revenue gained from selling one more unit.