# Essays on The Economics of Price Discrimination Assignment

Tags: Economics

The paper “ The Economics of Price Discrimination” is a perfect variant of the assignment on finance & accounting. The table below shows the monthly demand for movies for three individuals: Kat, Peeta, and Primrose.   Suppose the cinema has a marginal cost of \$3. I Suppose that last month the cinema only had 2 customers: Kat and Peeta. What would have been the cinema’ s profit-maximizing linear price? Kat MB (\$/unit)   Sales (units/ yr) 10.00   1 8.00   2 6.00   3 2.00   4 Peeta MB (\$/unit)   Sales (units/ yr) 9.00   1 4.00   2 1.00   3 0.00   4 Primrose MB (\$/unit)   Sales (units/ yr) 7.00   1 3.00   2 0.00   3 0.00   4   For MR, consider the following: KAT       PEETA       Primrose   TR MR MB (\$/unit) Sales (Unit/month) TR MR MB (\$/unit) Sales (Unit/month) TR MR MB (\$/unit) Sales (Unit/month)     10 1 10 10 9 1 9 9 7 1 7 7 8 2 16 6 4 2 8 -1 3 2 6 -1 6 3 18 2 1 3 3 -5 0 3 0 -6 2 4 8 -10 0 4 0 -3 0 4 0 0 MR=δ TR/δ Q Total sales=8unitsThus MR=72q/8 =9qProfit is maximized when MC=MRMC=\$33=9q The maximizing quantity is 3 units, making the maximizing price become \$3.5 ii Suppose that this month the cinema obtained an additional customer: Primrose.

(Thus, this month the cinemas have 3 customers. ) What would be the cinema’ s new profit-maximizing linear price? For additional customers, Primrose, the total revenue becomes \$85 with the total units sold is 12 as shown in the table above. Thus MR=85q/12 =7.08q Profit is maximized when MC=MRMC=\$33=7.08qThe maximizing quantity is 2.36 units, making the maximizing price become \$3.5 that becomes \$5 from the table. iii Provide intuition for the difference in your results in parts a and b. There is a tendency of the price increment when the number of customers increases, i.e.

price increasing with demand. Thus, the profit-maximizing price is low due to two customers compared to the b, where there are three customers. in the above example, does the cinema’ s profit increase or decrease when Primrose joins the market? Since the marginal revenue is more than the marginal cost, but at the introduction of the third customer, Primrose, the total revenue increases, but the marginal revenue remains constant, thus the profit is increased when Primrose joins the market.

References

Carroll, D and Coates, D. (2009). Teaching price discrimination: Some clarification, Southern Economic Journal,66(2), 466-480.

Phlips, L. (1999). The economics of price discrimination. Cambridge [u.a.], Cambridge Univ. Press.