she can set her price accordingly. Hence Donna should implement perfect price discrimination. By knowing the price‚ the seller is able to encapsulate the total market surplus‚ consequently diminishing all consumers’ surplus and converting it into revenues. On this notion‚ because the firm knows how much each consumer is willing to pay‚ they will maximise their revenues (See Figure 1) at the expense of setting their prices too high or too low. Moreover‚ setting one singular price will not differentiate
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Disadvantages of Monopoly: • Higher prices and lower output Monopolies often mean that prices will be higher and output lower than is the case for an industry where competition prevails. Firms in one industry are producing under conditions of perfect competition‚ while the other firm is operating under conditions of monopoly. The costs of production are the same for each industry. • Excess profits High profits made by the monopolist are not necessarily an indication of efficient methods
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Chapter 15 Monopoly 1. Monopolies use their market leverage to a. charge prices that equal minimum average total cost. b. attain normal profits in the long run. c. restrict output and increase price. d. dump excess supplies of their product on the market. ANSWER: c restrict output and increase price. SECTION: 1 OBJECTIVE: 1 2. If government officials break a natural monopoly up into several smaller firms‚ then a. competition will force firms to attain
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costs and low‚ or even zero‚ marginal costs. Setting prices equal to marginal cost will generally not recoup sufficient revenue to cover the fixed costs and the standard economic recommendation of "price at marginal cost" is not economically viable. Some other mechanism for achieving efficient allocation of resources must be found. The outcome of this investigation is that (i) efficient pricing in such environments will typically involve prices that differ across consumers and type of service; (ii) producers
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anticipate the cost and price structures of their competitors. However‚ many airline carriers have a hard time accomplishing this because the average airline passenger just needs to travel from one destination to another in the most convenient and shortest amount of time at a reasonable price. Therefore‚ customers in this market are not as loyal to one specific airline (brand) in the industries. The reason for this is that airline carriers provide the same services at similar prices. In addition‚ the
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Second-Degree Price Discrimination Example In class on Monday and Tuesday (9/17-18) we went through the second degree price discrimination example involving a company selling airline tickets to tourists and businesspeople. The following slide‚ included in your handouts‚ laid out the example: [pic] As the solutions to the problem set explain‚ the way to approach these problems is to think through possible pricing strategies the company might want to use‚ such as selling to all consumers‚ selling
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children. These companies include unisex clothing stores and jeans stores for all ages instead of stores aimed at a particular age group or sex. Industry Environment The clothing industry in the US entails more than 100‚000 stores with combined revenues of over 150 billions dollars a year. The giants within this industry include Abercrombie & Fitch‚ GAP‚ Urban Outfitters‚ and TJX Companies‚ which I shall be concentrating on in this paper. This industry is extremely concentrated and the fifty
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Dynamic Pricing in the Airline Industry R. Preston McAfee and Vera te Velde California Institute of Technology Abstract: Dynamic price discrimination adjusts prices based on the option value of future sales‚ which varies with time and units available. This paper surveys the theoretical literature on dynamic price discrimination‚ and confronts the theories with new data from airline pricing behavior. Correspondence to: R. Preston McAfee‚ 100 Baxter Hall‚ California Institute of Technology‚
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control over price; it is a price maker. (Unlike the pure competitor that has no such control and therefore is a price taker.) The pure monopolist confronts the usual downward-sloping product demand curve. It can change its product price by changing the quantity of the product it supplies. The monopolist will use this power whenever it is advantageous to do so.” (McConnell-Bruce‚ page 438). Quasar can set the price at 2‚550 per unit with a total cost of $12.18 (billion) and total revenue of $13.5 (billion)
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fringe of firms that act as price takers of the price Intel sets. The market willingness to pay for the P80 chip is given by= 400 − Q‚ with p in dollars p F per chip and Q in thousands of chips per month. The fringe marginal cost curve is MC= 40 + .5Q F (with Q F and MC F also in thousands of chips and dollars per chip‚ respectively)‚ and Intel’s marginal cost of producing chips is constant at $50 per chip. Intel is planning its strategy to set the P80 chip price. (a) Determine the residual
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