Limit pricing: Keep out

240 Part III: Market Structures and the Decision-Making Environment

1. Set total revenue equal to total cost.

Remember that total revenue equals price multiplied by the quantity sold, and total cost equals total fixed cost plus total variable cost.

2. Substitute AVC×q for TVC.

Recall that total variable cost equals average variable cost multiplied by the number of units produced q.

3. Subtract AVC×q from both sides of the equation in Step 2 and simplify.

4. Divide both sides of the equation by (P – AVC).

This step enables you to solve for the breakeven quantity, q.

5. Substitute the values for TFC, P, and AVC and solve for q.

Your breakeven quantity is 100,000 units.

Discriminating among Customers

Price discrimination refers to a situation where the same good is sold to different groups of consumers for different prices. For example, the couple sitting next to you at the movie paid a lower price to get in because they’re senior citizens. Or, perhaps you get a student discount at a local restaurant that non-students don’t get.

Price discrimination exists in a variety of situations. Therefore, economists define different degrees of price discrimination to reflect the various situations associated with this pricing policy. However, no significance is