ECO204Y1 Lecture Notes - Lecture 13: Price Discrimination, Fixed Cost, Costco

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16 Mar 2018
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Examples of public policies to reduce monopoly dwl: per-unit subsidy use per-unit subsidy so that mc=mr where supply = demand. Tax payer expense = amount it takes to shift mc curve to this point: price ceiling price ceiling imposed at competitive price: p = mc = d. If binding, price ceiling forces mr to be that of competitive firm. Efficient outcome: demand = mc leads to negative profits meaning firm(s) exit(s) Entry of a 2nd firm increases ac and decreases total surplus. Price discrimination a difference in the price charged for the same good or service that is not due to a difference in the cost of providing the good or service. The monopolist engages in price discrimination to maximize profits, done by using pricing strategies to charge each consumer at their willingness to pay, thereby capturing all the surplus, eliminating the quantity-

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