FAQ: Price discrimination is a rational strategy for a profit-maximizing monopolist when?

How a monopolist can increase profits by price discriminating?

A price–discriminating monopolist can increase profits by: charging a higher price to those with less elastic demand and a lower price to those with more elastic demand than it would if it could not price discriminate.

When can a monopoly price discriminate?

A supplier can discriminate prices if there is no contact between buyers of different markets. If buyers in one market come to know that prices charged in another market are lower, they will prefer to buy it in other market and sell in own market.

How does the monopolist determine the profit maximizing price?

A monopolist can determine its profit–maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. Thus, a profit–maximizing monopoly should follow the rule of producing up to the quantity where marginal revenue is equal to marginal cost—that is, MR = MC.

Why do monopolists engage in price discrimination?

A monopolist engages in the price discrimination whenever it is possible in order to capture the consumers surplus and increases his profit.

What are the 3 degrees of price discrimination?

There are three types of price discrimination: first-degree or perfect price discrimination, second-degree, and third-degree.

Is a monopolist guaranteed to earn profits?

Unlike the purely competitive firm, the pure monopolist can continue to receive economic profits in the long run. Although Monopolists likely make greater profits than they would in pure competition, they are not guaranteed a profit. Monopolies don’t operate at maximum efficiency in regard to resources and production.

What is price discrimination example?

Price discrimination occurs when identical goods or services are sold at different prices from the same provider. Examples of forms of price discrimination include coupons, age discounts, occupational discounts, retail incentives, gender based pricing, financial aid, and haggling.

Under what conditions price discrimination is profitable?

Specifically, we show that when a continuum of product qualities are feasible, price discrimination is profitable if and only if the ratio of the marginal social value from an increase in quality to the total social value of the good is increasing in consumers’ willingness to pay.

What is an example of second degree price discrimination?

Second–degree price discrimination involves charging consumers a different price for the amount or quantity consumed. Examples include: A phone plan that charges a higher rate after a determined amount of minutes are used. Reward cards that provide frequent shoppers with a discount on future products.

How do you calculate monopolist profit?

A monopolist calculates its profit or loss by using its average cost (AC) curve to determine its production costs and then subtracting that number from total revenue (TR). Recall from previous lectures that firms use their average cost (AC) to determine profitability.

Can a monopolist charge whatever they want?

For a monopoly, price need not equal marginal cost. However, monopolies cannot charge any price they want. Profits of monopolies are not unlimited, though they can be higher than profits for competitive firms.

How do you find what price will maximize profit?

Then P=R−C where R is the revenue, and R=xp, the price function multiplied by x. We need to figure out what the function for profit is, find the value of x that maximizes it, and then plug that value of x into our price function. This will give us the price that maximizes the profit.

How can we prevent price discrimination?

10 Ways to Make Sure You’re Seeing the Lowest Price Online

1. Try different browsers. Search for a product using as many web browsers as possible (Chrome, Firefox, Internet Explorer, Safari).
2. Go incognito.
3. Use a different device.
4. Be a PC.
5. Relocate.
6. Add $heriff.
7. Sign up.
8. Cross-check deal sites.

Is perfect price discrimination economically efficient?

Is perfect price discrimination economically​ efficient? efficient because it converts into producer surplus what had been consumer surplus and deadweight loss.