AP Economics
Mr. Bernstein
Module 63:
Price Discrimination
December 2016
AP Economics
Mr. Bernstein
Monopolies:
• Reduce output and raise prices to consumers,
relative to Perfectly Competitive firms
• Earn an economic profit, unlike Perfectly
Competitive firms in Long Run equilibrium
• By producing at output below P = MC, loss of total
welfare exists (deadweight loss)
• As a result, governments may adopt policies to
regulate monopolies
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AP Economics
Mr. Bernstein
Price Discrimination
• Charging different customers different prices
• Example: Airline tickets
• Not necessarily based
on volume
• Complicates the
analysis relative to a
single Pm
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AP Economics
Mr. Bernstein
Example: The “Slam Grand” breakfast
• Assume only 2 market
segments – students
and senior citizens
• Diner’s MC = $2
• 100 sr. citizens will pay $4
• 100 students will pay $8
Students have lower
price elasticity – Why?
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AP Economics
Mr. Bernstein
Perfect Price Discrimination
• Each customer is charged
exactly their maximum
willingness to pay
• The final unit is sold
where P = MC so there
is no deadweight loss
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