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Microeconomics

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Moderate

Price Discrimination: The Beneficiaries

MICRO-PBO17$

Consider a firm with pricing power that does not price discriminate. Then, the firm decides to implement third degree price discrimination, charging a higher price to consumers known to have higher MV (marginal value) for the product, and a lower price to consumers known to have a lower MV.

Before the change, the firm chose a single price to maximize its profit the best it can with one price. After the change, the firm chooses two prices to maximize profit the best it can with two prices.

After this change, the firm is

, the consumers with low marginal value are

, and the consumers with high marginal value are

.