Price Discrimination
Different prices for different customers based on their willingness to pay
High willingness to pay
Inelastic demand. Higher prices will be charged.
Low willingness to pay
Elastic demand. Low prices charged
3rd Degree Price Discrimination
Different prices for different groups.
segmenting consumers into groups with different elasticities of demand and charging each group a different price.
2rd Degree Price Discrimination
Different prices for different quantities.
Bulk sales
1st Degree Price Discrimination
Perfect Price Discrimination.
Everyone gets different prices based on their willingness to pay.
Natural monopoly
When economies of scale are so strong that producing everything with one firm is more efficient than splitting the work.
When is a market allocatively efficient?
When the MC is the same as the ATC
Total revenue demand elasticity test
if Total revenue and price go up together or down together, it is inelastic. If they differ, the demand is elastic.
allocatively efficient
P=MC
resources are distributed to produce the combination of goods and services most valued by society
When does a monopolistic competition market become more elastic?
Firms exit the market
–> fewer substitutes available
–> more inelastic
Collusion outcome
outcome in a game that is best for both participants
Dominant strategy
An action taken by a player regardless of what the other does.
Nash equilibrium
The selected choice for 2 of the firms –> most likely outcome for game theory
There can be 2
Pay off matrix
a visual, tabular tool used in game theory to display all possible strategies and outcomes for two or more players.
