What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?
What will be an ideal response?
Perfect price discrimination, also known as first-degree price discrimination, occurs when a firm knows every consumer's willingness to pay and is able to charge every consumer a different price - the maximum price each is willing to pay. The firm's marginal revenue curve in this situation is the same as its demand curve and the firm converts all potential consumer surplus into profits. It is highly unlikely that any firm would be able to use yield management to determine each consumer's maximum willingness to pay. It is also unlikely that if the firm charged each consumer a different price it would prevent arbitrage, where a consumer who bought the product at a low price could sell the product to another consumer with a higher willingness to pay.
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If market price is greater than or equal to the minimum of AVC but below the minimum of AC, then
A) the firm will shut down. B) the firm will operate because its loss is less than if it shut down. C) revenue is lower than variable costs. D) profit is positive and so the firm will operate.
Which of the following is FALSE about firms organized along functional lines?
a. Workers develop functional expertise b. Workers can easily share information within their division c. They foster the exploitation of economies of scale d. None of the above
An early frost in the vineyards of Napa Valley would cause a(n)
a. increase in the demand for wine, increasing price. b. increase in the supply of wine, decreasing price. c. decrease in the demand for wine, decreasing price. d. decrease in the supply of wine, increasing price.
If government undertakes to reduce water usage by using a market incentive plan:
A. consumers will be asked to reduce water usage voluntarily. B. consumers who reduce water usage by more than the required amount can sell marketable certificates to consumers who seek to reduce usage by less than the required amount. C. each consumer will have to reduce his or her water usage by an equal amount. D. consumers who do not reduce usage by the required amount will have to pay taxes on the extra water usage.