Perfect price discrimination (1st degree)
Bulk pricing (2nd degree)
- Two part tariff (multi part tariff)
Market segmentation (3rd degree)
- Men and women pay different prices
- Old age people pay discounted price
Single price
- No discrimination at all
Total dd (Type 1) = 20 x q1
= 20(200 – 2p1)
= 4000 – 40p1
Total dd (Type 2) = 10 x q2
= 10(400 – 5p2)
= 4000 – 50p2
Q = q1 + q2
= (4000-40p1) + (4000 – 50p2)
= 8000 – 90p
Q = 8000 – 90P
90P = 8000 – Q
800
1
P = 9 − 90 𝑄
TR = P x Q
800
1
MR = 9 − 45 𝑄
When 𝜋 max, MR = MC
800 1
−
𝑄 = 40
9
45
1
800
360
440
𝑄= 9 − 9 = 9
45
Q = 45 (
440
P = 64.44
9
) = 2,200
1 8000
CS = 2 ( 90 − 64.44) (2200)
= 26893.78 cents
= $268.94 (or $269)
2 part tariff
1) Fixed charge / fee (F)
2) Per unit charge / price (P)
P = MC
P = 40
Charge a Fixed fee = CS allows monopolists to maximise profit -> equip the fixed fee to the
consumer surplus (the amount consumer willing and able to pay).
P = MC = 40
Fixed fee = A
If P > MC
𝜋1 = (𝐴 + 𝐶) + (𝐴 + 𝐶 + 𝐸 + 𝐹)
If P = MC,
𝜋2 = (𝐴 + 𝐶 + 𝐸) + (𝐴 + 𝐶 + 𝐸)
The difference between 𝜋1 and 𝜋2 is F – E
F > E, so charging P > MC will increase profits of the firm by slightly.
Fixed charge at $10, the person is willing to pay at $12.25.
The person is only willing to pay $33.64, while the package fixed charge is at $35.
Type II
Consumer surplus ($12.25 - $10) + ($36.10-$35) = $3.35
Producer surplus = profit
PS(Type I) = [1000 (fixed charge) + (65-40)*70] x 20 people
= $550
PS(Type II) = [3500 + (42-40)*190] x 10 people
= $388