Perfect Price Discrimination Graph

Simple diagram for price discrimination. With price discrimination the firm can charge two different prices.

3 Main Forms Of Price Discrimination With Diagram

Perfect price discrimination is charging whatever the market will bear.

Perfect price discrimination graph. Three things are necessary for effective price discrimination. But if it can price discriminate it can make even more profits. If successful the firm can extract the entire consumer surplus that lies.

Under perfect price discrimination the firms are able to charge the maximum price for each unit sold which enables them to capture the entire consumer surplus. Then they run a sale and charge p e and sell q e q m. Without price discrimination the firm charges one price 7 100 700 revenue.

The firm is able to charge the maximum possible price for each unit which enables the firm to capture all available consumer surplus for itself. The graph below shows perfect price discrimination at work. First they charge the normal price p m and sell the normal quantity q m.

Perfect price discrimination also called pure price discrimination is an economy theory where a business is able to charge the maximum price that consumers are willing to pay for each of its products leaving no consumer surplus. With perfect price discrimination this profit expands to the area between the demand curve and mc curve. 4 120 480.

Sometimes known as optimal pricing with perfect price discrimination the firm separates the market into each individual consumer and charges them the price they are willing and able to pay. In practice first degree discrimination is rare. First degree price discrimination alternatively known as perfect price discrimination occurs when a firm charges a different price for every unit consumed.

9 8 we can see that total profit is now much larger. Under perfect price discrimination the producer surplus will be the entire region that lie below the demand curve and above the marginal cost curve as well as to the left of the profit. Think about when a store runs a sale.

First degree price discrimination sometimes referred to as perfect price discrimination exists when a firm charges customers a different price for each unit of the good sold everyone pays a different price for the good. Total revenue 830. Sales are an exercise in price discrimination.

10 35 350. Since every customer is being charged the maximum amount he is willing to pay all consumer s surplus has been captured by the firm. The rectangle with blue dashed line shows optimal output and price when there is no price discrimination and the solid purple figure shows optimal output and total revenue when there is perfect price discrimination.

This degree is the ultimate extreme in price discrimination hence its designation as perfect when first degree price discrimination exists. What is 1st degree perfect price discrimination. Therefore the firm makes more revenue under price discrimination.

Perfect price discrimination if the monopolist can identify buyers by their reservation values and set different prices for different buyers and buyers do not have the possibility of trading between themselves then even if it sets a price for each buyer just below her reservation value that buyer will still purchase the good. Although this rarely happens in the real world it is possible.

Price Discrimination