Week 8

• firms can affect the prices in monopoly and oligopoly structures
• in a monopoly, firms face the inverse demand curve p = D(y)
• in a monopoly, firms have a total cot function TC = c(y)
• in a monopoly, the profit of a firm is py - c(y)
• a monopolist maximises its profit by choosing y
• in a monopoly, p is not a constant, but a function of y
• in a cartel, a duopoly decisdes together to produce a total amount, Q
• price discrimination is when monopolists charge different prices for the same product to different groups
• 1st Degree price discrimination involves charging different prices to every customer
• 2nd degree price discrimination involves deals and packages, where a quantity and price are paired up, and people choose the package they want
• 2nd degree price discrimination allows the individual to self-select the bundle they want, so the right deal goes to the right group
• in 2nd degree discrimination, the monopolist maximises profits based on the participation constraints and self-selection constraints
• in 2nd degree discrimination, the monopolist lets the individual choose the plan they want, and the firm doesnt know who the individuals are
• 3rd degree price discrimination, there are 2 prices in 2 market groups which have different demand
• in 3rd degree discrimination, the firm knows about the demand structure in the different markets, and chooses their prices accordingly
• in 3rd degree discrimination, if the price elasticities are different, there will be price discrimination between the markets, and the markets with lower values of elasticity will have higher prices