MGCR 293 Lecture Notes - Lecture 14: Partial Derivative, Price Discrimination, Economic Surplus

• School: McGill University
• Department: Management Core
• Course: MGCR 293
• Professor: Kamal Salmasi

Document Summary

All pricing strategies are means of capturing consumer surplus and transferring it to the producer. Raising price will lose some consumers, leading to smaller profits. Lowering price will gain some consumers, but lower profits. Price discrimination occurs when the same product is sold for more than one price (ex. Airline might sell tickets on a flight at different prices) A firm practicing discrimination chooses the output where mc of its entire output is equal to the common value of mr in the two classes (market segments or different markets) The firm also maximizes its profits by allocating the total output between the two classes in such a way that: mr in one class = mr in the other class. Then, the ratio of price in the first class to the price in the second class will equal: (1+1/n1) / (1+1/n2) , thus if the two price elasticities are equal, the firm will not pay to discriminate.