If the monopolist is able to perfectly price discriminate and charge for each unit exactly how much consumers are willing to pay for that unit, how many units should they sell?
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In this scenario, the monopolist charges each consumer the maximum price they are willing to pay for each unit of the good. Show more…
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"Perfect price discrimination" occurs when each consumer is charged his or her maximum price for the product. When this happens, the monopolist is able to capture the entire consumer surplus. Draw a demand curve for each of six consumers and compare $(a)$ the situation in which all consumers face a single price with $(b)$ a market under perfect price discrimination. Explain the paradoxical result that perfect price discrimination removes the inefficiency of monopoly.
Imagine a monopolist could charge a different price to every customer based on how much he or she were willing to pay. How would this affect monopoly profits?
If a monopolist could perfectly price-discriminate: (LO1, LO4) a. The marginal revenue curve and the demand curve would coincide. b. The marginal revenue curve and the marginal cost curve would coincide. c. Every consumer would pay a different price. d. Marginal revenue would become negative at some output level. e. The resulting pattern of exchange would still be socially inefficient.
Andrew D.
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