Homogeneity and Price Discrimination
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How to find Homogeneity? Multiply by λ
Multiply all inputs by factor of λ
Factorise out λp completely and function is homogenous to degree p
2
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How to find homogeneity using Euler’s Theorem?
if z = f(x,y) is homogenous to degree h then x ∂z/∂x + y ∂z/∂y = hz
3
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When can a firm price discriminate?
Must have monopoly power
Must be able to identify and separate out different consumers
Consumers must have different elasticities of demand
No leakages between markets
4
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How to profit maximise in multiple markets with one single product?
∂π/∂Q1 = MR1 - MC1 = 0 and ∂π/∂Q2 = MR2 - MC2 = 0
As there is only one product MR1 = MR2 = MC
Note 
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