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Video transcript

let's say that I am a producer of wine and in this axis vertical axis this is dollars per bottle so 10 20 30 $40 per bottle and on this axis right over here I'll have quantity of bottles I produce per week so let's say that this is 100 this is 200 300 and then 400 so this is quantity of bottles bottles per week per week and this is dollars per bottle dollars per bottle so let's think about the demand curve here the demand curve for my type of wine we're going to assume this is highly differentiated wine the demand curve looks something like that I'm doing it as a straight line for simplicity the demand curve looks like that and since I said differentiated this is not going to be perfect competition I have a monopoly in my type of wine so where's this isn't the market for wine generally this is a market for my wine my wine which has won some taste test and has this unique flavor and whatever else and so you can view you can view me as a monopolistic competitor there's obviously competition from other wine labels from other wine producers but my wine is differentiated and I have a monopoly in my particular type of wine and we've done this multiple times if I have a monopoly in my type of wine we're talking about the market in my wine then my marginal revenue curve my marginal revenue curve will have twice the slope of this so it will look something like that and I actually keep going negative after that so that is my marginal revenue curve and then we can think about the cost side the cost side of things my marginal cost might look something like this marginal cost or you could even view that as a supply curve for my wine and then we can also do average total cost so the average total cost started off high we have a fixed cost divided by a small quantity but the marginal costs are lower than the average so the average keeps going down and down and down and down then they're equal now each incremental unit is bringing up the average in cost so then the average total cost might look something like that average total cost and we've seen this show multiple times if in the near term I kinda I do have a monopoly here so I will just produce the quantity where my marginal revenue is equal to my marginal cost before that quantity for every unit I'm getting economic profit economic profit economic profit if I produce more than that I'm not getting any economic profit anymore so I'm going to produce I'm going to produce this quantity which John it looks like about 160 units and I'm going to sell it I'm going to sell it for now let me be careful here the price I'm going to be able to sell it so this is the quantity that I'm going to be able to sell the price I'm going to sell it at go up to the demand curve that point of the demand curve and it looks like I'll be able to sell it for about I don't know $33 a bottle so $33 a bottle and if we want to think about economic profit this is the average revenue per bottle this is the average cost per bottle so this is the average economic profit per bottle and I multiply that times the total number of bottles and I'm going to get my economic profit so this area right over here is my total economic profit and we can think about how much are the consumers betting benefiting from it how much benefit are they getting excess of what they're paying for it and that would be this area right over here that is the consumer surplus consumer consumer surplus now let's say I'm just not happy with this I see that there's an opportunity to get even more economic profit because after all and we've been talking about this from the beginning there are people here who are getting over $40 of benefit from my wine but I'm selling it to them for only $33 everything we've assumed so far is that we're selling all the consumers are buying something at the exact same price but I'm a crafty wine producer and I say well let me call that into question why can't I just put a different label on my exact same wine and sell it to these people for a different price and so I do that exact thing I still produce this exact same quantity I produce this exact same quantity but the first the first hundred units of my quantity I put a different label on it this label says super fancy wine super fancy premium the best wine you ever drank super fancy premium wine it has all of the awards all of the fancy people who like it I the best wine boutiques and the best restaurants with that label although it's the exact same stuff in the bottle and I sell that one at $40 a bottle so the first 100 units I sell at $40 a bottle so now my economic profit on those units remember I'm producing 150 so my average total cost is down here my average total cost is this line right over here so on those bottles I'm getting this much economic profit per bottle times these hundred units I've now increased my economic profit I've eaten into the consumer surplus I've taken some of that for myself and turned it into economic profit and then the other I don't know this looks like about 60 or 70 bottles I just have with the traditional label and I maybe sell at the supermarket traditional traditional label and I just sell it at the supermarket I call it just you know pretty good wine just so in case someone who bought it at the fancy place doesn't see that the pretty good wine is the exact same thing and what I've just done here is I've discriminated I have discriminated amongst consumers depending on consumers willingness to pay I've essentially charged them different prices and also I guess to some degree based on where they shop and their gullibility I am charging them two completely different prices and this right over here is called disco this is called price price discrimination discrimination and it's a way that a supplier can essentially take some of the consumer surplus for themselves eat into some of that excess excess marginal benefit that they're essentially giving to the consumer and turning it into economic profit
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