Intermediate Microeconomics · free preview
Third-Degree Price Discrimination
When the monopolist can separate markets and prevent resale, it equalizes marginal revenues across them, charging the Lerner markup market by market, 12 in the less elastic market and 8 in the more elastic one at MC 6, elasticity sorting the prices.
1. Two markets, one MC
Two markets, one MC
2. The equalization logic
The equalization logic
3. Segmentation in the world
Segmentation in the world
4. Welfare and policy review
Welfare and policy review
5. The condition
What does the third-degree price discriminator equalize?
6. The worked prices
With MC 6, elasticities 2 and 4, what are the discriminating prices?
7. Who pays more
Which segment pays the higher price under third-degree discrimination?
8. The welfare verdict
What can be said about welfare under third-degree discrimination?
9. The elastic market's price
Compute 6 divided by 1 minus one quarter, and write the number.
10. The inelastic markup
Compute the markup share for the elasticity-2 market, one half, and write it to two decimals.
11. The small market's margin
In the elasticity-4 market the price is 8 with MC of 6. What is the per-unit markup there?
12. The price ratio
The discriminating prices are 12 and 8 in the two markets. What is their ratio?
13. A middle elasticity
Suppose a third segment had elasticity 3 with the same MC of 6. What price would it face?
14. The cost rises
MC rises from 6 to 9. What happens to the elasticity-2 market's price?
15. Markup in the elastic market
In the elasticity-4 market with price 8 and MC 6, compute the per-unit markup, and write the number.
16. A third segment's price
For a segment with elasticity 3 and MC of 6, compute 6 divided by 1 minus one third, and write the number.
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