Question

List three ways that a company can price discriminate, and briefly explain how each behavior could increase profits for the company. (6 pts) HTML Editora B I VA - A - I E321 X X, SE V JDT 12pt Paragra Films On Demand (2.0)

Answer 1

The three ways a company can price discriminate are :

1. First degree price discrimination - In this type of price discrimination, the firm charges consumer's maximum willingness to pay.
   Since, it charges consumer's maximum willingness to pay, it captures all the consumer surplus and thus make profits equal to the total surplus.
   
2. Second degree price discrimination - In this type of price discrimination, the firms charges different prices for different amounts of quantity purchased by the consumers. Since, it charges different different prices for different quantities, it can extract maximum consumer surplus and make profits.
   
3. Third degree price discrimination - This type of price discrimination occurs when the firms charges different prices for different groups consumers. For instance, the firm can charge more for its product or services from large group of organisations. Such as electricity bills for office buildings, gas for industrials, etc. Thus, the firm can exploit the consumer's surplus and earn maximum profits without sacrificing any customer.