Question

UUM IUS. ILUJ, LU) 6. Explain why price discrimination and the existence of slightly different variants of the same product tend to go hand in hand. Give an example from your own expe- rience. (L06) 7. TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in por- traits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price shown in the following table. Assume George has no fixed costs, and his cost of producing each portrait is $12. (L04, LO5, L06) 9. S Customer Reservation price ($ per photo) W 00 a. How much should George charge if he must charge a single price to all customers? At this price, how many portraits will George produce each day? What will be his economic profit? b. How much consumer surplus is generated each day at this price? c. What is the socially efficient number of portraits? d. George is very experienced in the business and knows the reservation price of each of his custom- ers. If he is allowed to charge any price he likes to any consumer, how many portraits will he produce each day and how much economic profit will he earn?

Answer 1

Ans 6. Price discrimination:

Price discrimination is possible:

1) The seller must have some control over the supply of his product.

2) The seller must be able to divide the market into at least two sub markets.

3) The price elasticity of the product must be different in different markets.

4) The buyers from low priced market should not be able to sell the product to buyers from high priced market.

5) Little bit differences in the products.

Generally we can see, that when the above conditions prevail, then the sellers will be able to sell different varieties of same goods in two or more markets at different prices. For example shampoo industry. They are charging different prices for shampoo with different variants in a market.