Consumer Surplus 2 Quantity Figure 11.3 4.Give some examples of third-degree price discrimination.Can third-degree price discrimination be effective if the different groups of consumers have different levels of demand but the same price elasticities? To engage in third-degree price discrimination.the producer must separate customers into distinct markets (sorting)and prevent the reselling of the product from customers in one market to customers in another market(arbitrage).Whik examples in this chapter stress the techniques for separating customers there are also techniques for preventing resale.For example,airlines restrict the use of their tickets by printing the name of the passenger on the ticket.Other examples include dividing markets by age and gender,e.g charging different prices for movie tickets to different age If cusomer in the prte markets have tho fm equation 11.2 we know that the prices are the same in all markets.While the producer can effectively separate the markets, there is little profit incentive to do so. 5.Show why optimal,third-degree price diserimination requires that marginal revenue for each group of consumers equals marginal cost.Use this condition to explain how a firm should change its prices and total output ifthe demand curve one group consumers shifted。 utward,so that marginal l revenue for that group increased. We know that firms maximize profits by choosing output so marginal revenue is equal to marginal oost.If MR for one market is greater than MC.then the firm should increase sales to maximize profit,thus lowering the price on the last unit and raising the cost of producing the last unit.Similarly,ifMRfor markets ess than MC.thefirm should de sales to maximize rofit,the reby the price on the last unit and lowering the cost of producing the last unit By equating MR and MC in each market,marginal revenue is equal in all markets. Price Quantity P1 P2 Q1 Q2 Consumer Surplus D Figure 11.3 4. Give some examples of third-degree price discrimination. Can third-degree price discrimination be effective if the different groups of consumers have different levels of demand but the same price elasticities? To engage in third-degree price discrimination, the producer must separate customers into distinct markets (sorting) and prevent the reselling of the product from customers in one market to customers in another market (arbitrage). While examples in this chapter stress the techniques for separating customers, there are also techniques for preventing resale. For example, airlines restrict the use of their tickets by printing the name of the passenger on the ticket. Other examples include dividing markets by age and gender, e.g., charging different prices for movie tickets to different age groups. If customers in the separate markets have the same price elasticities, then from equation 11.2 we know that the prices are the same in all markets. While the producer can effectively separate the markets, there is little profit incentive to do so. 5. Show why optimal, third-degree price discrimination requires that marginal revenue for each group of consumers equals marginal cost. Use this condition to explain how a firm should change its prices and total output if the demand curve for one group of consumers shifted outward, so that marginal revenue for that group increased. We know that firms maximize profits by choosing output so marginal revenue is equal to marginal cost. If MR for one market is greater than MC, then the firm should increase sales to maximize profit, thus lowering the price on the last unit and raising the cost of producing the last unit. Similarly, if MR for one market is less than MC, the firm should decrease sales to maximize profit, thereby raising the price on the last unit and lowering the cost of producing the last unit. By equating MR and MC in each market, marginal revenue is equal in all markets