ECON 2350 Lecture Notes - Lecture 3: Monopoly Price, Price Discrimination, Old Age
7 Jan 2018
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How should a monopoly price? u so far a monopoly has been thought of as a firm which has to sell its product at the same price to every customer. Types of price discrimination u 1st-degree: each output unit is sold at a different price. Prices may differ across buyers. u 2nd-degree: the price paid by a buyer can vary with the quantity demanded by the buyer. But all customers face the same price schedule. E. g. , bulk-buying discounts. u 3rd-degree: price paid by buyers in a given group is the same for all units purchased. E. g. , senior citizen and student discounts vs. no discounts for middle-aged persons. First-degree price discrimination u each output unit is sold at a different price. Third-degree price discrimination u price paid by buyers in a given group is the same for all units purchased. Market 1"s inverse demand function is p1(y1). u y2 is the quantity supplied to market 2.
