AP Economics Mr. Bernstein Module 63: Price Discrimination December 2, 2014

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 By producing at output below P = MC, loss of total welfare exists (deadweight loss) As a result, governments may adopt policies to regulate monopolies 2

AP Economics Mr. Bernstein Price Discrimination Charging different customers different prices Example: Airline tickets Not necessarily based on volume Complicates the analysis relative to a single P m 3

AP Economics Mr. 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? 4

AP Economics Mr. 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 5