How do you calculate price discrimination?

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How do you calculate price discrimination?

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Answer 1 · 2015-09-11T09:23:05

Monopolist charges a high price in a market where his product has relatively inelastic demand. otherwise he charges a lower price.

Explanation:

Monopolist practices price discrimination. He charges a low price in a market his product faces relatively elastic demand and a high price in a market in which there is relatively inelastic demand for his product.

If he knows the price elasticity, based on that information, he can calculate his price.

New quantity known $Q_{2}$ $Q_2$
Original quantity known $Q_{1}$ $Q_1$
Original price known $P_{1}$ $P_1$
New Price unknown $P_{2}$ $P_2$
Elasticity of Demand known $E_{d}$ $E_d$

$E_{d} = \frac{Q_{1} - Q_{2}}{P_{1} - P_{2}} . \frac{P_{1}}{Q_{1}}$ $E_d=(Q_1-Q_2)/(P_1-P_2).P_1/Q_1$

Sove it for $P_{2}$ $P_2$

For each elasticity you will have a price.

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How do you calculate price discrimination?

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