Aviation Advanced Economics

Running head: ECONOMICS 1
Aviation Advanced Economics
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1ECONOMICS
Introduction
According to Czerny and Zhang, 2015 third degree price discrimination in economics
involves a monopolist charging different prices to varying consumer segments for same
products and services. There is a direct relationship between 3rd degree price
discrimination and the overall willingness and capacity of consumers to afford given goods
or services. Under third degree price discrimination, it is easy to identify specific groups
basing on time of use, location, sex and age. It is important to note that market
segmentation of price discrimination is also referred to as third degree price discrimination.
Under third degree price discrimination, consumers are charged basing on the nature or
type of market segment. For third degree price discrimination to be successful three
conditions must be effectively satisfied by the seller and they include among others price
maker, market control or lack of contact between the two groups (Alderighi et al,2015).
There a number of reasons why specific groups have varying demand elasticities and they
include; availability of substitutes, differences in tastes and differences income. Variation in
airline ticket prices is a clear example of third degree price discrimination
From the graph below there is a clear illustration of 3rd degree price discrimination. The
marginal revenue for consumers in group A are represented in the curved labeled MRA. It is
clear that there is relative steepness of the demand curve meaning that is not very elastic.
The marginal revenue and Demand for consumers in group B is represented in the curves
labelled MRB and dB. There is more elastic demand among group B consumers given that
the demand curve is flatter (Czerny and Zhang,2015).

2ECONOMICS
MC* is the overall marginal cost or expenses of the ending unit. Where the marginal
revenue is equal to the marginal cost, the overall profit maximizing output for every group
effectively corresponds to the quantity. Prices, from the graph are determined at across the
vertical axis from the output that maximizes the level of profits to the demand curve of the
group. Price PA and qA0 is the overall profit maximizing out for consumers in Group A. price
PB and quantity qB0 is the maximizing output for consumers in group B.
Figure 1 showing third degree price discrimination (Czerny and Zhang,2015).