Solution:

Second-degree price discrimination:

• In second-degree price discrimination, price varies according to the quantity sold. Larger quantities are available at a lower unit price. This is particularly widespread in sales to industrial customers, where bulk buyers enjoy higher discounts.

• Additionally to second-degree price discrimination, sellers are not able to differentiate between different types of consumers.

• This allows the supplier to set different prices for the different groups and capture a larger portion of the total market surplus. Second-degree price discrimination is an imperfect form of first-degree discrimination.

• Instead of setting different prices for each unit involves pricing based on the quantities of output purchases by individual consumers. This is illustrated by Diagram.

• For each buyer, the first Q1 unit purchased is priced at P1, the next Q2 - Q1 units are priced at P2, and all additional units are priced at P3 In reality, different pricing may apply to differences in product quality as well as quantity.

• For example, airlines often offer multiple classes of seats on flights, such as first-class and economy class. This is a way to different consumers based on preference, and therefore allows the airline to capture more consumer surplus.

• This type of price discrimination involves businesses selling off packages of a product deemed to be surplus capacity at lower prices than the previously published/advertised price.

Peak and Off-Peak Pricing:

• Peak and off-peak pricing are common in the telecommunications industry, leisure retailing, and the travel sector. Telephone and electricity companies separate markets by time:

• There are three rates for telephone calls: a daytime peak rate, an off-peak evening rate, and a cheaper weekend rate. Electricity suppliers also offer cheaper off-peak electricity during the night.

• At off-peak times, there is plenty of spare capacity and marginal costs of production are low (the supply curve is elastic) whereas, at peak times when demand is high, we expect that short-run supply becomes relatively inelastic as the supplier reaches capacity constraints.

• A A combination of higher demand and rising costs forces up the profit-maximizing price.