Question

Please answer both questions with a brief explanation.

1) Explain why producer surplus is maximized when firms are able to use perfect/1st degree price discrimination.

2) URI students receive free admission to home athletic events. Is this an example of price discrimination? If so, what kind? Explain.

Answer 1

1.First degree price discrimination means a discrimination where the producer charges differently for each unit of the commodity consumed. This maximises the producer surplus as producers charges the maximum amount, the one is willing to pay for that good, taking away all their consumer's surplus. In this way, they make wider range of classes of people their customers.

2. This is an example of price discrimination. The category of discrimination in which it falls is the third degree price discrimination. In this type of price discrimination, prices variate according to geography and time. As students particularly from URI are getting free admissions , it becomes discrimination of the basis of geographic location.