Price Discrimination

Masters
Essay
Business
Pages 15 (3765 words)
Download 0
Demonstrate how the principle of willingness to pay underlies consumer surplus and the practice of price discrimination. Explain the equilibrium solution to an industry that is able to practice perfect price discrimination.
The conception of the consumer's surplus originated from the Marshallian theory of cardinal utility…

Introduction

KD is the marginal utility curve. The price is given by OP. So E is the equilibrium point that obeys the two conditions (both necessary and sufficient).
Let us consider that the consumer is consuming 0B amount. For 0Bth unit the consumer is willing to pay BL units of money but he actually needs to pay BG units. His willingness to pay is greater than his actual payment. So he will raise the consumption and consequently there will be a decline in the willingness to pay by the consumer. Finally at point E the willingness to pay matches with the actual payments.
The marginal utility curve is the demand curve as it depicts the demand price of the commodity at each corresponding level of consumption. On the other hand at each level of price the equilibrium demand for the commodity by the consumer is determined by the marginal utility curve.
In the above diagram the total willingness to pay is measured by summing up the willingness to pay at each level of q. Hence the total willingness to pay is given by the area of 0KEA and actual payment is P.q.
The difference between total utility (willingness to pay in terms of money) and the total expenditure on the goods consumed. Graphically the portion below the demand curve and above the price line represents consumer's surplus. (Sen, 2002)
The first degree of price discr ...
Download paper
Not exactly what you need?

Related papers

Economics for Business Decisions
Assuming that XYZ operates at optimum level, the following quantity and price would be chosen by them: Total Revenue – Total Cost (Price * Quantity) – (Total Cost) From the data given (5,000-0.2Q)*Q – (20,000,000+0.05Q2) 5000Q - 0.2Q2 – 20,000,000 – 0.05Q2 The final equation derived is P= -0.25Q2 + 5000Q - 20,000,000 The profit maximizing output will exist at the point where the…
No Topic - This is a report paper
Locals pay less because the shop aims to develop deeper relationship with them and make them repeat customers. Our belief is that from the repeat purchases, the shop will be able to make good returns from the locals. Visitors, on the other hand are one-off purchases and that is the reason why the shop will charge them 15 percent and 25 percent more. An example of the effect of our strategy is…
Market Power, Price Discrimination, and Alocative Efficiency in Intermediate-Goods Market
Such firms are usually said to have the capabilities of affecting either the standing market price or the total quantity of products within the market single handedly. Price discrimination is described as a situation whereby identical goods from the same organization exist in the market but sold at different prices. This mainly occurs in monopolistic or oligopolistic markets. With reference to the…
U.S. housing price
The situation became worse with the reduction in the availability of credit. This made it impossible for the willing prospects to pay for home ownership. This paper makes an attempt to investigate the housing problems of the US and the future that lies ahead of this sector. The project would also provide a direction to the prospective buyers of the houses and would help to determine how the prices…
Monopoly Market Structure
In the operating system of monopoly there is usually one firm that provides the majority of the products and services sold and there may be a handful of smaller firms that might have little or no impact on the large dominant firm…
Price Discrimination
KD is the marginal utility curve. The price is given by OP. So E is the equilibrium point that obeys the two conditions (both necessary and sufficient).…
Price Discrimination Essay
Product pricing also depends on the availability of competitors in the market and certain rules and regulations of the land.…