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Wednesday, March 30, 2005

What's wrong with this picture?

I came across this graph of perfect price discrimination. Can you tell what is wrong with this picture?



I'll let you know what I think on Friday.

Comments:
Output at point A is beyond the point of profit maximization. Each unit the firm produces and sells beyond the Q below the point where MC=MR reduces profits.

Q* is below the point where MC=MR. To find TC, go up to the AC curve above that point. Profit is the area above this rectangle formed off the AC curve and below the demand curve.
 
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