Price Discriminating Monopoly Profit

D higher average willingness to pay. A discriminating monopoly is a monopoly firm that charges different prices to different segments of its customer base.

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A discriminating monopolist like an ordinary monopolist tries to get maximum profits.

Price discriminating monopoly profit. 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. This is measured by 1. We can thus derive the condition of profit maximization under price discrimination by extending the normal theory of the firm to a case where there are two or more markets instead of just one market.

He would supply the product in different amounts to achieve his ultimate goal. 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 if successful the firm can extract the entire consumer surplus that lies underneath the demand curve and turn it into extra revenue or producer surplus. Compared to a pure monopoly first degree price discrimination increases the profit of the monopolist.

Profit maximization under price discrimination the aim of the discriminating monopolist is to maximize profits. Price discrimination requires the following conditions. Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to.

The firm possesses some degree of monopoly power and can set price. B higher supply elasticities. Firstly even at the output of the pure monopoly q m price discrimination fetches a higher profit on the intra marginal units.

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. A price discriminating monopolist charges lower prices to customers with a lower supply elasticities. An online retailer may charge higher prices for buyers in wealthy zip codes.

In fact his action of price discrimination is profitable if the elasticity of demand in one market is different from the elasticity of demand in the other. Finally customers can t resell the good. First degree price discrimination alternatively known as perfect price discrimination occurs when a firm charges a different price for every unit consumed.

You can segment the market into customers who have different price elasticities of demand. This increase in profit has two sources which are shown in fig. Conditions necessary for price discrimination.

C monopolists are able to practice price discrimina tion because a of differing average willingness to pay among consumers. C lower average willingness to pay.

Monopoly Price Discrimination Video Khan Academy