a) What information does a firm need to implement 1st degree price discrimination b) What information...

a) What information does a firm need to implement 1st degree price discrimination b) What information does a firm need to implement 3rd degree price discrimination?

Expert Solution

* Price Discrimination -:
It is a practice of charging different price for similar goods. The objective of price discrimination is to earn further more profit and to transfer consumer surplus from consumers to firm. It could be of the following three forms.
1) First degree price discrimination
2) Second degree price discrimination
3) Third degree price discrimination

Answer a)
*To implement 1st degree price discrimination, Firm should be able to identify each buyer than it may be possible to charge from each buyer the maximum price buyer is willing to pay for the good. (Reservation Price)
* The strategy of perfect price discrimination is to exract all consumer surplus. In this pricing practice average revenue = Marginal revenue which means that MR coincides with demand curve.

Answer b)
* To implement 3rd degree price discrimination following information is required by the firm-:
1) Market must be divided in different submarkets i.e. Firm can identify the different segments of market.
2) Firms should have the information about the price elasticity of demand and it must be different in different submarkets.
In addition firm must have monopoly power.

For profit maximization in 3rd degree price discrimination -:

Rahul Sunny answered 8 months ago

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