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First degree price discrimination

S

Sunit_K

Member
In the course notes it is written.
"the firm's demand curve in the absence of price discrimination effectively becomes its marginal revenue curve in the presence of FDPD, so it will produce where price=MC"
I'm having trouble understanding this.
If anyone could please shed light on this.
Thanks
 
When a single price is charged to all consumers, the demand curve is represented by the average revenue (AR) curve. The AR received by the firm is simply the price that each consumer pays.

The marginal revenue (MR) curve is the change in total revenue obtained by selling one more unit. Usually the MR curve is steeper than the AR curve because in order to sell an extra unit of the good, the firm has to reduce the price paid for that extra unit and for all the previous units too.

However, under FDPD (for which the firm charges each consumer the maximum price that he or she is prepared to pay), the firm does not have to reduce the price paid for all previous units. So the MR curve effectively becomes the AR curve, ie the demand curve.
 
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