y, will lead to profit maximization in the end. The firm must, of course, be on the ball and must make constant changes of the demand, and the price for the good, at any given time, after the initial price is set, and a number of units are sold. Firms practicing price skimming will generally start their pricing schedules where the demand schedule has its vertical interception. From there, as the demand at any given price shrinks, the firm readjusts the price of the good to get more sales. As before, the firm maximizes profits where the marginal revenue is equal to marginal cost. The firm will not continue to sell the good below this point. The trick to price skimming is that the consumers do not become accustomed to the process and therefore "wait" for the prices to drop. Customers may be upset about paying a higher price initially, and this may lead to the customer not becoming a return customer next time, or simply that the customer who bought at a high price this time will hold off on a purchase next time, waiting for a price reduction. Price skimming is no longer effective if the consumers have been conditioned to the process. The other example of first-degree price discrimination is the "all-or-none" model. This means that the firm will set a price for a given good, and no matter what portion of the good you desire, you pay the same price as if you were to purchase all of them. The diamond industry is an example of this, often selling less-than-perfect gems along with the perfect gems in order to get rid of the less-desirable merchandise. By putting goods together in a "grab bag", firms can rid themselves of merchandise that would normally not sell otherwise, or at least not for the same price. Likewise, firms can sell larger than necessary volumes of certain items, even though no one in his or her right mind would willingly purchase such large quantities of certain goods. This format of moving merchandise is especially popular a...
