TAILIEUCHUNG - Microeconomics for MBAs 42

Microeconomics for MBAs 42. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 12 Monopoly Power and Pricing Decisions Sometimes a firm can profit by charging different prices to different customers without appearing to do so. This can be accomplished by putting the same price on two products that are consumed together by some customers but not by others. Consider the owner of a theater who realizes that some customers are willing to pay more to go to the movies than others are. Obviously the owner would like to charge these customers more. But the owner has no way of determining who the price-insensitive customers are when they are paying for their tickets. So how does the manager charge the priceinsensitive customers more without losing the remaining customers There is a way that we have all observed but probably didn t think of as an example of price discrimination. Assume that the theater owner believes that those customers who are willing to pay the most to watch a movie are generally the ones who most enjoy snacking while watching. If this assumption is correct and we will argue in a moment that it probably is the owner takes advantage of the demand of the enthusiastic movie watchers by charging a moderate price for the tickets to the movie and high prices for the snacks sold in the theater lobby. By keeping the ticket prices moderate the customers with a high demand elasticity for the movie will still buy a ticket since they are not going to do much snacking anyway. While the low elasticity demanders will surely complain about the high prices on all the snacks they eat they still consider the total cost of their movie experience acceptable since they were willing to pay more for their ticket than they were charged. If it were not true that those who are willing to pay the most to watch a movie also enjoy snacking the most then it is unlikely that we would observe such high prices for snacks at the For example assume that the opposite were true that those who are not willing to pay much to watch a movie are the ones .

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