Intermediate Microeconomics · free preview

First- and Second-Degree Discrimination

Perfect discrimination captures the entire surplus, pricing each unit at willingness to pay, efficient but extractive, and second-degree discrimination prices without knowing types, quantity discounts, versions, and two-part tariffs screening consumers into self-selection, identical consumers paying fee 1936 and unit price 12 in the worked case.

1. First degree

First degree

2. Second degree

Second degree

3. Two-part tariffs

Two-part tariffs

4. Bundling and the family's end

Bundling and the family's end

5. The first-degree outcome

What does a perfectly discriminating monopolist produce and who keeps the surplus?

6. Second degree's problem

What defines the second-degree discrimination setting?

7. The worked tariff

Identical consumers, P equal 100 minus 2Q, MC 12. What two-part tariff extracts all surplus?

8. Bundling's condition

When does bundling raise revenue over separate sales?

9. The fee's ceiling

Compute consumer surplus at p 12 and Q 44, half of 88 times 44, and write the number.

10. Quantity at cost pricing

Solve 100 minus 2Q equal 12 for Q, and write the number.

11. The two-part profit

With entry fee 1936 and per-unit price 12 equal to MC, what does the two-part monopolist earn per customer?

12. A mis-set fee

Suppose the firm charges per-unit 12 but sets the entry fee at only 1000. What happens?

13. Bundling's arithmetic

User A values a word processor at 90 and a spreadsheet at 10, user B the reverse. What does a 99-dollar bundle of both earn?

14. When bundling fails

Now both users value both products at 60. How do separate sales at 60 compare with any bundle?

15. Profit per customer

Under the optimal two-part tariff with fee 1936 and usage price 12, compute profit per customer, and write the number.

16. Bundle revenue

Two users each value a bundle at 100 and the bundle prices at 99. Compute total revenue, and write the number.

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