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AP Economics

AP Economics. Mr. Bernstein Module 63: Price Discrimination December 3, 2013. AP Economics Mr. Bernstein. Monopolies: Reduce output and raise prices to consumers, relative to Perfectly Competitive firms Earn an economic profit, unlike Perfectly Competitive firms in Long Run equilibrium

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AP Economics

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  1. AP Economics Mr. Bernstein Module 63: Price Discrimination December 3, 2013

  2. AP EconomicsMr. Bernstein Monopolies: • Reduce output and raise prices to consumers, relative to Perfectly Competitive firms • Earn an economic profit, unlike Perfectly Competitive firms in Long Run equilibrium • By producing at output below P = MC, loss of total welfare exists (deadweight loss) • As a result, governments may adopt policies to regulate monopolies

  3. AP EconomicsMr. Bernstein Price Discrimination • Charging different customers different prices • Example: Airline tickets • Not necessarily based on volume • Complicates the analysis relative to a single Pm

  4. AP EconomicsMr. Bernstein Example: The “Slam Grand” breakfast • Assume only 2 market segments – students and senior citizens • Diner’s MC = $2 • 100 sr. citizens will pay $4 • 100 students will pay $8 Students have lower price elasticity – Why?

  5. AP EconomicsMr. Bernstein Perfect Price Discrimination • Each customer is charged exactly their maximum willingness to pay • The final unit is sold where P = MC so there is no deadweight loss

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