The paper "How Price Discrimination Affects Consumers and Firms" is an outstanding example of a macro & microeconomics assignment. Price discrimination is a pricing strategy executed on identical goods and services transacted at different marketplaces using different prices by the same marketer. The cost of production of the commodities might be the same, but consumers are charged different or separate prices based on a different market. For optimal resource allocation, it is inevitable in real life situation to evade price discrimination. Uniform pricing can never be achieved since firms do have some monopoly power and in case they do not have they engage marketing techniques to keep their market unique therefore making cost differentiation generally possible. In order to have successful price discrimination, certain assumptions are met.
The firm identifies different market segments such as local users and industrial users. The above mention segments must have different price elasticity based on their market operation. Market scenarios must be kept apart, either by physical distance, by time under operation or the mode of use based on distinct prices. The firm, in this case, is assumed to have some degree of monopoly power and furthermore assumed there is no seepage such that a consumer purchase at a lower price in one market, sell it to a demanding consumer in another inelastic market at a higher price to get a profit (Agarwal, 2010 p. 354). (B) The cinemas charge half prices on admissions as a way of price discrimination with an aim of maximizing admission which economically translates to higher profits.
The firm, therefore, is able to exploit many willing customers able to pay minimum amount cited and from it the firm gains pure profits (Lipsey & Chrystal 2015, p 01).
Thus graphically, P2 and Q2 represent a point of maximization of output, by setting price=SMC. (C) How to price discrimination affects consumers and firms Price discrimination benefits both the consumer and the firm in a number of ways. Maximizing revenue gain and the ability to drive competitors out of business, a scenario known as predatory pricing are some of the benefits.
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