Two-part tariffs and first-degree price discrimination are 2 common ways how sel

Question

Two-part tariffs and first-degree price discrimination are 2 common ways how sellers can attempt to extract consumer surplus to increase their profits. a. Please, discuss briefly the key (1-2) pros and cons of these approaches from the point of the sellers! b. Please, describe in a few sentences a situation (a specific product or industry) where only one of these approaches would work and the other one would be useless! Why would it be useless? Two-part tariffs and first-degree price discrimination are 2 common ways how sellers can attempt to extract consumer surplus to increase their profits. a. Please, discuss briefly the key (1-2) pros and cons of these approaches from the point of the sellers! b. Please, describe in a few sentences a situation (a specific product or industry) where only one of these approaches would work and the other one would be useless! Why would it be useless? Two-part tariffs and first-degree price discrimination are 2 common ways how sellers can attempt to extract consumer surplus to increase their profits. a. Please, discuss briefly the key (1-2) pros and cons of these approaches from the point of the sellers! b. Please, describe in a few sentences a situation (a specific product or industry) where only one of these approaches would work and the other one would be useless! Why would it be useless?

Explanation / Answer

Two part tariff-Basically the two part tariff used a pricing scheme to extract more of the consumer surplus.These schem is made up of two i.e (a) price per each unit (b)fixed,one time fee.So basically it s a technique for price discrimination of product i.e composed of two parts. whereas Price Discrimination is the condition where actually producers can discriminate among the consumers ,based on which consumer is actually pay more and which pay less,the consumer that are willing to pay more,they charge them more where they charge the consumers less ,who are mot willing to pay much.

So, Pros of Two part tarriff are:

1)It is easy to understand for the customers, about the rate

2)It getback the fixed charges which is actually depend upon the maximum customers demand but are actually independent of the units consumed.

Pros of Price Discrimination are:

1.Firm can get a higher revenue by a particular given sales.

2. They used this revenue for Research and Development

Cons of Two part Tariff:

1.In any case the consumers have to pay a fixed charge in any case,whether it used or not used the product.

2.For assessing the maximum demand of the consumer there is always an error.

Cons of Price Discrimination

1.Sometimes consumers have to pay more than that they actually have to pay before the price discimination occured.

2.The consumer surplus that was there before price dismination will be lost after the price discrimination

Answer b;

Let take an example of senior citizen going for a movie, some theatres charge less for senior citizen than the uoung adults,just because the theatre believe that if price is lower then more senior citizen are most likely to buy more tickets as they exhibit more elasyicity than the younger ones when it come for buying ticket for a movie but the Young adults are ready to pay more ticket price than the senior citizen becuse they will go to movies anyways whether the tickets are of high rate or equal to senior citizen.

So in this case we can see the case of a price discrimination case where we do not use the two part tariff condition,as per the definition of the two part tariff

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