Discrimination, Discrimination, Prejudice and Prejudice and Stereotype
Second-Degree Price Discrimination with declining AC
2
Second-Degree Price Discrimination with declining AC Quantit y $/ Q D MR MC AC P 0 Q 0 Without discrimination: P = P and Q = Q 0 . With second-degr discrimination there are thr prices P 1 , P 2 , and P 3 . (e.g. electric utilities), not P 1 Q 1 1st Block P 2 Q 2 P 3 Q 3 2nd Block 3rd Block Second-degree price discrimination is pricing according to quantity consumed--or in blocks. With blocks (P1, Q1), (P2,Q2), (P3,Q3), deadweight loss becomes zero P 4 P A B C D E Q 4 4 th Block F G H Note at P2,P3 blocks, prices charged are uniform; hence no question of falling MR; So, problem of MR<MC doesn’t arise. Consumer surplus is sum of triangles PAP1, ACF, CDG (not DHE)
description
Second-degree price discrimination is pricing according to quantity consumed--or in blocks. P 1. Without discrimination: P = P 0 and Q = Q 0 . With second-degree discrimination there are three prices P 1 , P 2 , and P 3 . (e.g. electric utilities), not P 4. P 0. P 2. AC. P 3. MC. D. - PowerPoint PPT Presentation
Transcript of Second-Degree Price Discrimination with declining AC
Second-Degree Price Discrimination with declining AC
Quantity
$/Q
D
MR
MC
AC
P0
Q0
Without discrimination: P = P0 and Q = Q0. With second-degree
discrimination there are threeprices P1, P2, and P3.
(e.g. electric utilities), not P4
P1
Q1
1st Block
P2
Q2
P3
Q3
2nd Block 3rd Block
Second-degree pricediscrimination is pricing
according to quantityconsumed--or in blocks.
With blocks (P1, Q1), (P2,Q2), (P3,Q3), deadweight loss becomes zero
P4
P
A
B
C
D
E
Q4
4th Block
F
G
H
Note at P2,P3 blocks, prices charged are uniform; hence no question of falling MR; So, problem of MR<MC doesn’t arise.
Consumer surplus is sum of triangles PAP1, ACF, CDG (not DHE)
Second-Degree Price Discrimination with U-shaped AC
$/Q
Q
AC
MC
ARMR
P1
P2
P3P4P5
P
Q1 Q2 Q3 Q4 Q5
A1
A2A3
A4A5
B2
B3B4
B5
Profit-maximizing combination= (P2,Q2), if uniform price is charged
In case of second-degree pricediscrimination, price-block combinations (P1,Q1), (P2,Q2),(P3,Q3), (P4,Q4) are possible w/oDWL. But if combinations stop at (P3,Q3), then there will be some DWL. Combination (P5,Q5) not feasible as MC>P5.
