MC is the slope of the line tangent to the TC Curve at the point (Q, TC(Q)). MC is the derivative of the TC with respect to Q, and the derivative is the slope of the tangent line.
• Demand Substitute: When price of X falls, Demand of Y falls
• Demand Complement: Price of X falls, the demand for Y increases o Printer and ink
• Shifting of the DEMAND and SUPPLY curve o Shift of the Supply Curve: When the cost of production changes.
• Better technology, change of input costs
• With a price increase, if the supply goes down it is likely coming from a supply shock
• Estimating Demand curves: Looks at historical data, data from similar products (break it down to components), randomized experiments, Consumer Surveys, Secondary (resale) market, actions).
• Consumer Surplus: Of those customers who bought the item, the difference between what the total group was willing to pay verse what the group of consumers actually ended up paying.
• Price ceilings and floors o Price Ceiling example: Rent Control (this creates an excess of demand) o Price Floor example: Minimum wage (this creates an excess supply)
• Price Discrimination: Charging different prices to different customers or charging different prices to an individual for each unit that the customer purchases. (ASSUMPTION: Very difficult for consumer to resell the product)
• To be successful, the firms must have monopoly pricing power. o Perfect Price Discrimination
• 1st degree: Where each consumer will pay max amount they are willing to pay. o If every consumer is charged exactly her willingness to pay for each incremental unit.
• i.e. Secondary markets, street vendors, fin aid, actions o Imperfect Price Discrimination: Occurs when there are groups of consumers that have different demand curves for a good on average.
• 3rd degree (You don’t have to worry about people changing): A situation where a company sells to different verifiable groups of people, where the two groups have different demand for the good.
• Differentiating between locals and non-locals, students, senior citizens, etc.
• MR(group A)=MR (group B) when there is a constant MC
• Example: MC=0, Q(S)=200-4P; Q(NS)=200-2P; Q(TOTAL)=Q(S)+Q(NS)=400-6P=Market demand curve o If a monopolist can’t charge different prices, solve for monopoly via market demand curve. o If