Marginal Revenue Opportunity Cost Essay - 1,236 words

... mind would willingly purchase such large quantities of certain goods (e. g. 10 -packs of household 3 -in- 1 oil). This format of moving merchandise in a way where the amount or items purchased arent necessarily discretionary is especially popular at auctions. A tiered form of price discrimination, second degree is the practice of selling incremental amounts of a good for incremental prices. The first 12 pairs of shoes are $ 80, the next 12 pair are $ 72, and so on.


The customers, like in discrimination of the 3 rd degree, are grouped together in the corresponding tiers so to speak, and since the tiers all pay the same price, the marginal revenue is constant within each tier and its purchases. Like 3 rd degree price discrimination, the 2 nd degree often allows the firm to sell more quantity that they would ordinarily. The catsup example is a fine one, making prices variable due to the size of a given container of goods. This example also illustrates how the consumers must be self-selective, based upon their lifestyle and / or preferences. Customers with the higher demand prices will tend to buy smaller quantities at higher average unit prices, while those with lower demand prices will more often purchase the larger quantities at a lower unit cost. Second degree price discrimination generally leads to a situation where more quantity per unit is sold.


Sams Club is the 2 nd degree price discrimination heaven. Mr. Waltons little warehouses across the land plainly aim for a consumer that is willing to buy more at a lower price per unit. While the price may, in fact, be a bit lower, it still troubles me to see people purchasing 256 ounces of Ivory dish washing detergent at a single time. Finally, 2 nd degree price discrimination yields itself well to a process called product bundling. This should not be considered the same as the Ernest Saves Christmas and Hunt For Red October scenario, but instead where tow copies of the same film (to show it on two screens) is far less than just leasing two copies of the same film reel.


Product bundling is prevalent in the personal computer industry. System packages are bundled together with the most popular software and hardware alike, and this reduces possible haggling over certain items. No one can argue about the value of not including a CD-ROM or video card. Third degree price discrimination deals with separating customers into distinct groups based upon their difference in elasticity of demand. Based upon this elasticity, you then charge a higher price to the group whose demand is less elastic.


Marginal revenue is the change in the total revenue that is the result of a small change in the sales of the good in question. Therefore, price must, too, have changed slightly. The model in the book (Hartford Shoe Company student discounts) illustrates this phenomenon extremely well. When the non-student group of consumers experiences a price increase of $ 5, this group purchases 625 fewer pairs of shoes. Interpolation yields the concept that for every $ 1 that the price increases, sales will fall by 125 units. Likewise, when the student price for the shoes in question falls $ 5, 625 additional pairs of shoes will be sold.


This again can be interpolated to mean that every dollar less the shoes are priced, 125 more units will be sold. Thus, a change of just $ 1 makes students and non-students alike change their purchasing preferences by 125 pairs of shoes. We can use this observation to generate the ideal pri ...................................................................................................................................................................................................................................................................................................................................................................

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Essay Tags: opportunity cost, consumer base, marginal cost, price discrimination, marginal revenue

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