4.3 Price Discrimination

b. Explain (using graphs where appropriate) equilibrium, firm decision making, consumer surplus, producer surplus, profit (loss), and deadweight loss in imperfectly competitive markets and why prices in imperfectly competitive markets cannot be relied on to coordinate the actions of all possible market participants and can lead to inefficient outputs. c. Calculate (using data from a graph or table as appropriate) areas of consumer surplus, producer surplus, profit (loss), and deadweight loss in imperfectly competitive markets.

• A firm with market power can engage in price discrimination to increase its profits or capture additional consumer surplus under certain conditions.
• With perfect price discrimination, a monopolist produces the quantity where price equals marginal cost (just as a competitive market would) but extracts all economic surplus associated with its product and eliminates all deadweight loss.
• Enduring understanding PRD-3: Even with a common goal of profit-maximization, market structure constrains and influences prices, output, and efficiency.