Hello, I'm Scotts Scottsman and today
we're going to talk about
economics and we're going to talk about
sellers with and without price discrimination.
Today we're going to have professor Mark 
McNeil to talk about economics.
Here we are in beautiful Baja Tustin, CA at the
McNeil International Film Studios
headquarters
and the topic is a price searcher who
charges one price compared to
a price discriminating price searcher.
In this case we're talking about price
discrimination
perfect prices discrimination where
everybody gets charged the highest price
they are willing to pay,
versus a a firm that cannot price
discriminate
and must charge everyone the same
price. With one price there is no price
discrimination.
Marginal revenue has twice the slope
of the demand curve and if we a
marginal cost curve here let's make them 
both the same
here is marginal cost there's marginal cost.  So marginal cost...
We would produce where marginal
cost equals marginal revenue.
This is the quantity and
up to the demand curve for the price.
you want Q1. Now
let's look at these areas here.  If the firm
does not price discriminate its total
revenue will be this
green area price times quantity and
the difference between price and
opportunity cost;  this
on each unit is the producer
surplus. Down here is the opportunity
cost of producing
each of these units so that rectangle
here
is opportunity cost and this little
area right there is the difference
between a
buyer is willing to pay and what they
actually pay that is the price
and this represents... Do you people know?  Huh?
Pay attention!  Pay attention!  Put that phone down.
Ok.
So this is what is?  What is it again?
That's it! Consumer surplus.
Good job!  Now there's a little missing
piece to this puzzle right there.
there is that little triangle this
triangle represents
all the trades that are not done (but should be done).
Where somebody values it more than the
opportunity cost of producing it.
All of these are examples of
lost wealth because
the quantity is restricted from what it
would be in a purely competitive market.
Okay and so this is deadweight loss.
Now let's turn this seller into a perfect
price discriminator - perfect price
discriminator.
That means they will charge each person
who buys it
the maximum they are willing to pay for it-
something like when you go to buy a car.
Do they try and figure out what is the
maximum you will pay?
Or if you go to college and you apply
for financial aid
they want to charge you the highest
you're willing to pay.
So if that's the case, then
demand is the same as marginal revenue.
With perfect price discrimination demand
is the same as marginal revenue.
And so they would produce as long as the
marginal revenue exceeds the marginal
cost.
All these get produced until there
and this will be the price discriminators
quantity and the price.  There is not one price,
they're are all these different prices.
Everybody is charged a different price
with perfect price discrimination. So
this entire red striped area
is total revenue to this firm.  Do you see
that it is bigger?
Do you see?  And
this area right here is
the opportunity cost of producing each of these units.
So the area of opportunity cost is  that.  And then all of the area
opportunity cost is there
who then all the area beneath
price but above opportunity cost
represents is this firm's producer surplus.
So we have producer surplus - that area;
opportunity cost that area,
and what is missing here?  Two things
are missing.
One is there is no consumer surplus.
Consumers are paying the maximum
they're willing to pay so there is no consumer surplus.  Is that good or bad?
Exactly.  But
neither is there any deadweight loss.
So all of the resources are allocated
correctly and all the wealth creating
trades between producers, that's  these guys, and consumers - that's those guys.
All those wealth creating trades
are being made with perfect price
discrimination.
So there we have it.  One price,
different marginal revenue, that's the
quality, that's the price, total revenue is that amount,
consumer surplus, producer surplus,
opportunity cost,
and good old deadweight loss here.  But with perfect price discrimination
the demand curve, which shows price is equal to marginal revenue,
they will produce were marginal revenue
equals marginal cost.  That's that quantity.
And they have taken all the consumer
surplus
but they have eliminated...
[The voice] - consumer surplus? Close, but no cigar, baby.
They have eliminated the deadweight loss.
OK, that's it.  Grazie, grazie, grazie.
