The perfect price discrimination is illegal but, the imperfect discrimination is achieved, when the price discrimination is based on an individual customer. The latter is not legal in accordance to the law. However, this should not be confused to product differentiation, which involves the difference in quality but the same product. As a result of the differences in price elasticity of demand in my area, price discrimination would help to maximize profits.
The price for one pack of 1ltr cheese retails at $3 at a standard rate. Over the years, I have managed to create relations with my local customers. For that reason, only the locals are aware of the difference in prices. One pack of 1ltr cheese for the locals retails for the same price. However, for the visitors I will charge an extra $2 to make the total 5$ dolor for every one pack. In addition to the pack, I will be providing a wrapping bag that will cost me less than a dollar but, this will be an offer for anyone who wants the pack wrapped. Mostly the locals would not mind an unwrapped pack but, for visitors, it will be mandatory to serve them with a wrapped package. This will help me add a $1.5 in my sales of each 1ltr pack of cheese.
Supply And Demand Analysis
The government’s failure in superseding in cushioning the consumer from the exploitative high pricing in the cable TV industry does not affect the determinants of market pricing. The pricing of these services will not respond in a descending effect but rather the prices will keep on escalating. On the other hand, if the government intervenes, the services will be affordable hence; the demand for the services will be unusually high. This can have the effect of attracting high prices but the most probable effect is of the service providers exiting the market. This would be due to low profits and government control, which always have a negative effect on investor confidence.
The company may decide to introduce a different program that it can cheaply provide and one that is appealing to the customers. This action has the effect of gross advantage in profits to the service providers. High demand for the service and low production cost for the company would accrue to increase in profits. This again would increase the supply of products in the market. Low production cost will prompt the service providers to increase reproduction and hence surplus in the market.
Fall in demand
In the event of a fall in demand, the long run effects of the number of firms operating in the industry will be adverse.
Decreasing demand means decreasing sales and consumers are not willing or are unable to purchase the product in the given price in that period. This may be due to different causes like change in preferences, government policies affecting the industry and future expectation of increase in the supply. This also would lead to decrease in price and consequently decrease in profit margins. The Long run effect is that firms will opt to close down due to accumulative operation cost that they cannot afford to sustain.
Rise In Demand
The rise in demand is the opposite of the above-described event. These would be due to future expectation of a shortage because of low supplies. This will attract entries in the industries by other firms due to high prices of the products. Entry of new firms will prompt competition and hence price wars in a bid to woe customers. Consumer’s preference and climatic conditions influence the rise in demand, in agricultural products. Political stability is also a factor to consider in rising demand. The profit will increase because of high sales and consumer expenditure.
Long-run Average Cost Curves
These curves depict the economies and diseconomies of scale in a company. Economies of scale are the advantages accrued by a firm from expansion. These are factors that caused the price per unit of production fall because of increase in the amount of output. The diseconomies of scale are contrary to the economies of scale, and the most common are, purchase, managerial, financial, marketing and other scales. Some curves are longer than others as a result of its growth. As a company grows, it tends to work toward achieving its maximum economies of scale in the absence of diseconomies of scale. This causes a positive slope of the curve. The stretch of growth is the main reason that the curves are different and steeper on the downwards than others.
A new item in the market always attracts high demand. Buying a new digital camera that is the latest model in the market costs more than buying the same product six months later. This is price discrimination, as the quality of the product does not change. The quality remains the same, and the product does not change whatsoever. Change in price should be influenced by factors of production; this price is not in that category. The Department of Justice and the Federal Trade Commission proposed a revision of Horizontal Merger Guidelines. The purpose for this revision is to move away from investigative examination to explicit investigation into effects of business. A shift in approach of market description reduces the significance in determining competition. (Mankiw, 2011)
Conclusively, revising the access examinations to reduce the set period for an elastic investigation. The investigation will determine whether entrance would swift adequately to conquer the effectiveness of challenging competitive effects. Also, Companies that take into account mergers of new companies that bid rival products or services would increase profits. This is from, looking for antitrust regulation as to how changes in the approach may influence the appraisal of their contract by the proper bureau. (Mankiw, 2011)