Question

In 1st and 3rd degree price discrimination (PD), when profit maximizing, firms choose quantities across seqments such that the MR from the last bit (unit) is the same across all segments. The calculations of MR are different across the types of PD. What is MR in 1st degree and how does it differ from MR in 3rd degree?

Answer 1

Marginal Revenue is the revenue that is gained from the sale of an additional unit. It is the revenue that a company can generate for each additional unit sold; there is a marginal cost attached to it, which has to be accounted for.profit maximization is the short run or long run process by which a firm may determine the price, input, and output levels that lead to the highest profit. Neoclassical economics, currently the mainstream approach to microeconomics, usually models the firm as maximizing profit.The principal difference between short-run and long-run profit maximization is that in the long run the quantities of all inputs, including physical capital, are choice variables, while in the short run the amount of capital is predetermined by past investment decisions. In either case there are inputs of labor and raw materials.

A form of price discrimination in which a seller charges the highest price that buyers are willing and able to pay for each quantity of output sold. This is also termed perfect price discrimination because the seller is able to extract ALL consumer surplus from the buyers. This is one of three price discrimination degrees. The others are second-degree price discrimination and third-degree price discrimination.