Price discrimination a Third Degree Price Discrimination 4)Third-degree price discrimination is feasible when the seller can separate his/her market into groups who have different price elasticities of demand (e. g business air travelers versus vacation air travelers) Chapter 11 Slide 21
Chapter 11 Slide 21 Price Discrimination ◼ Third Degree Price Discrimination 4) Third-degree price discrimination is feasible when the seller can separate his/her market into groups who have different price elasticities of demand (e.g. business air travelers versus vacation air travelers)
Price discrimination a Third Degree Price Discrimination Objectives ◆MR1=MR2 ◆MC1= MR, and MO2=MR2 ◆MR1=MR2=MC Chapter 11 Slide 22
Chapter 11 Slide 22 Price Discrimination ◼ Third Degree Price Discrimination ⚫ Objectives ◆MR1 = MR2 ◆MC1 = MR1 and MC2 = MR2 ◆MR1 = MR2 = MC
Price discrimination a Third Degree Price Discrimination 尸1: price first group o P2: price second group o C(Qd= total cost of Q=Q1+ Q2 ● Profit(兀)=P1Q+P2Q2-C(Q Chapter 11 Slide 23
Chapter 11 Slide 23 Price Discrimination ◼ Third Degree Price Discrimination ⚫ P1 : price first group ⚫ P2 : price second group ⚫ C(Qr ) = total cost of QT = Q1 + Q2 ⚫ Profit ( ) = P1Q1 + P2Q2 - C(Qr )
Price discrimination a Third Degree Price Discrimination Set incremental /t for sales to group 1=0 △x△(g,△C 0 △Q△Q1△Q △(PQ) △C Mr =MC △Q △Q Chapter 11 Slide 24
Chapter 11 Slide 24 Price Discrimination ◼ Third Degree Price Discrimination ⚫ Set incremental for sales to group 1 = 0 ⚫ ⚫ 0 ( 1 1 1 1) 1 = − = Q C Q PQ Q MC Q C MR Q PQ = = − 1 1 1 1 1 ( )
Price discrimination a Third Degree Price Discrimination Second group of customers: MR2=Mc ●MR1=MR2=MC Chapter 11 Slide 25
Chapter 11 Slide 25 Price Discrimination ◼ Third Degree Price Discrimination ⚫ Second group of customers: MR2 = MC ⚫ MR1 = MR2 = MC