💸 Unit 1: Basic Economic Concepts
1.0Unit 1: Basic Economic Concepts
1.1Basic Economic Concepts: Scarcity
1.2Resource Allocation and Economic Systems
1.3Production Possibilities Curve (PPC)
📈 Unit 2: Supply and Demand
2.4Price Elasticity of Supply
2.6Market Equilibrium and Consumer and Producer Surplus
2.7Market Disequilibrium and Changes in Equilibrium
2.8The Effects of Government Intervention in Markets
⚙️ Unit 3: Production, Cost, and the Perfect Competition Model
3.6Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
📊 Unit 4: Imperfect Competition
4.1Introduction to Imperfectly Competitive Markets
💰 Unit 5: Factor Markets
5.2Changes in Factor Demand and Factor Supply
5.3Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
🏛 Unit 6: Market Failure and Role of Government
6.1Socially Efficient and Inefficient Market Outcomes
6.3Public and Private Goods
6.4The Effects of Government Intervention in Different Market Structures
⏱️ 2 min read
November 15, 2020
Price discrimination is a practice used by monopolies in which specific products are sold to different buyers and each consumer is charged the highest price that they are willing and able to pay. The price they are charged is based on their purchasing power and their demand elasticity.
There are three conditions that need to be present in order for a monopoly to practice price discrimination:
There are many differences between a regular monopoly and one that price discriminates. Take a look at the table below for more information.
When a monopoly price discriminates, it becomes allocatively efficient. A pure monopoly always produces less than a perfectly competitive market, meaning its level of output is not allocatively efficient. When a monopoly price discriminates, it earns a higher marginal revenue (MR), so it will increase its output and produce at the allocatively efficient level of output.
By price discriminating, a monopolistic firm will increase its economic profits. A pure monopoly charges a single price, where a price discriminator will charge each consumer at different prices. This eliminates consumer surplus and turns that into revenue, which in turn increases the economic profits that are earned by the firm.
Examples of various situations where monopolies are price discriminating include:
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