Is a price discriminating monopoly efficient?
The perfectly price discriminating monopolist will be allocatively efficient because the last unit sold will have a price equal to marginal cost.
How does price discrimination affect efficiency?
Price discrimination allows a firm to sell at a much higher output. Therefore it is making use of its previous spare capacity. This allows the firm to be more efficient with its factors of production. The increased output allows the firm to have lower long run average costs, further achieving greater profits.
How does price discrimination affect a monopoly allocative efficiency?
People may not like price discrimination; they may think it’s unfair. But price discrimination also provides more consumers with the product than they otherwise would be able to afford. By reducing the deadweight loss of social surplus price discrimination is more allocatively efficient.
How does perfect price discrimination affect consumer surplus?
Perfect Price Discrimination. There is no consumer surplus. There is no deadweight loss. Everyone pay the highest price they are willing to pay for each unit purchased.
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.
How do you calculate perfect price discrimination?
With perfect price discrimination CS is equal to zero since the monopoly is able to capture all of the consumer surplus with its pricing policy. PS is equal to the area under the demand curve and above the supply curve or PS = (1/2)($1000 per unit – $100 per unit)(450 units) = $202,500.
What is price discrimination in monopoly market?
The monopolist often charges different prices from different consumers for the same product. This practice of charging different prices for identical product is called price discrimination.
What is price discrimination under monopoly?
Why does price discrimination improve the efficiency of the market compared to monopoly?
Why does price discrimination improve the efficiency of the market compared to monopoly or monopolistic competition? The socially desirable output level is found where MC = D. This is the optimal quantity to produce. Perfect price discrimination gets us to the point where MC = D.
How do you calculate price discrimination?
Three factors that must be met for price discrimination to occur: the firm must have market power, the firm must be able to recognize differences in demand, and the firm must have the ability to prevent arbitration, or resale of the product.
What is price discriminating monopoly?
Price discrimination happens when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with costs of supply.