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Stanford Econ51 Lecture1 Fall2009
Monopoly equilibrium, competitive equilibrium, price discrimination intro
13
Economics
Undergraduate 2
09/21/2009

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Cards

Term
What is the "max" second order condition?
Definition
fxxfyy > fxy
Term
What is the "min" second order condition?
Definition
fxxfyy > (fxy)2
Term
What is TC?
Definition
TC = VC + FC
Term
What is TR?
Definition
TR = PQ
Term
What is Profit?
Definition
Profit = TR - TC
Term
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Definition
The area that comprises producer surplus.
Term
What is the shortcut formula for producer surplus?
Definition
Profits + Fixed Costs = PS
Term
What is the intuition behind the shortcut to producer surplus?
Definition
Profits - Variable Costs = Price - MC
Term
What is the inverse elasticitiy pricing rule?
Definition

(P-MC)/P = -1/elasticity

 

Term
What are the four conditions for price discrimination?
Definition

1) Firms need to know consumer preferences

2) Prevent resale and arbitrage

3) Market power (can be oligopoly)

4) Consumers must have different WTP

Term
What are the three types of price discrimination?
Definition

1) First Degree: perfect price discrimination

2) Second Degree: quantity discounts

3) Third Degree: multimarket segmentation (airline tickets), different prices for different market segments

Term
What are the key qualities of first degree price descrimination?
Definition

1) CS = 0 and TS = PS

2) The firm knows everything about you

3) Sell the same number of goods as in a competitive market

Term
T/F: In 1st degree price discrimination, the discrimination is done on an individual basis whereas in 3rd degree price discrimination, the discrimination is done on a group basis.
Definition
True
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