ECON 101 Lecture Notes - Lecture 20: Deadweight Loss, Marginal Revenue, Economic Surplus
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Up to this point we have considered only the case of a single-price monopolist (price searchers) Charges a single price to all consumers. In many cases, a price searcher can charge different prices to different consumers. Price discrimination: charging different prices to different consumers for the same good. Differences exist in consumer willingness to pay for a good. Price discrimination is profitable when consumers differ in their sensitivity to the price. Firms would like to charge higher prices to consumers who are willing to pay more and are less likely to stop buying the good if their price rises. It is profit-maximizing to charge a higher price consumers who are relatively more price inelastic and charge a lower price to consumers who are more price sensitive (elastic) Charging a high price to price sensitive consumers may drive them out of the market. Firm must be able to identify differences in willingness to pay between consumers.
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