ECO401 GDB 2016

The Case:
There are numerous beautiful buildings in the world. Taj Mahal is one of them which have been considered the master piece of Mughal art. This palace is constructed in the year 1653 in India with the order of Mughal emperor Shah Jahan to dedicate his favorite wife Mumtaz Mahal (Arjumand Bano Begum). More than 20,000 workers worked to construct Taj Mahal. Its cost was 32 million rupees at that time. If ticket sales are anything to go by, the gleaming 17th century Taj Mahal in Agra is the most popular monument in India, attracting over 2.5 million visitors a year. It attracts between 2 million and 4 million visitors annually, including more than 200,000 from overseas. A dual- pricing system is in place, with a significantly lower entrance fee for Indian citizens than for foreigners. Tickets rate are different for different people like foreigners have to pay rupees 750 and the visitors belong to SAARC countries have to pay rupees 510. On the other hand, Indian visitors pay only rupees 20 for entrance and there is no entry fee for the children who are under 15 years of age. Ticket rates are different for night visit for different people.
Requirement:
Being a student of economics, identify which degree of price discrimination is applied here and why?   plzzz discuss

 

Solution :

Price Discrimination:
This involves charging a different price to different groups of people for the same good

Types of Price Discrimination:

First Degree Price Discrimination use in TAJ MEHAL

This involves charging consumers the maximum price that they are willing to pay. There will be no consumer surplus.
Ticket rates are different for night visits for different people in TAJ MAHEL in which economic view is used first degree price discrimination.
Profit is maximized where MR=MC. Because demand is more inelastic in market (A) it leads to a higher price being set. In market (B) demand is price elastic, so profit maximizing price is lower.

Advantages of Price Discrimination

1. Firms will be able to increase revenue. This will enable some firms to stay in business who otherwise would have made a loss. For example price discrimination is important for train companies who offer different prices for peak and off peak.
2. Increased revenues can be used for research and development which benefit consumers
3. Some consumers will benefit from lower fares. E.G. old people benefit from lower train companies; old people are more likely to be poor.
4. Some consumers will end up paying higher prices. These higher prices are likely to be allocate inefficient because P > MC.
5. Decline in consumer surplus.
6. Those who pay higher prices may not be the poorest. E.g. adults could be unemployed, OAPs well off.
7. There may be administration costs in separating the markets.
8. Profits from price discrimination could be used to finance predatory pricing.

Disadvantages of Price Discrimination

Importance of Marginal Cost in Price Discrimination

In markets where the marginal cost of an extra passenger is very low. E.G. a bus traveler the firm has an incentive to use price discrimination to sell all the tickets. This is why sometimes prices for airlines can be very low just before their date. Once the company is due to fly the MC of an extra passenger will be very low. Therefore this justifies selling the remaining tickets at a low price.

Examples of price discrimination

1. Student discounts on trains
2. Discounts for buying train tickets in advance
3. Discounts for traveling at off peak time
4. Lower unit cost price for buying high quantity.

  Or

First degree Price Discrimination is being connected here .First-degree value segregation happens when a firm charges every shopper at every unit the most extreme cost the buyer will pay. A benefit expanding imposing business model will charge a value p1 where MR=MC and produce q1 yield. For this situation, the syndication gains an aggregate income of p1q1. A restraining infrastructure that utilizes first-degree value segregation will charge value equivalents to what an individual client will pay. Subsequently, it will now ready to catch extra income portrayed by the shaded triangle in chart 1 when contrasted with a benefit expanding imposing business model that charges a level cost to all clients. Initially degree value segregation successfully exchanges all shoppers from purchasers to the monopoly. A imposing business model
Read more at http://vustudents.ning.com/group/eco401economics/forum/topics/eco401-gdb-last-date-18-july#RDzMROerHpqmTphU.99