The graph shown here illustrates the demand curve, marginal revenue curve, and the cost curves for a profit-maximizing monopolist with constant costs and no fixed costs that cannot currently price discriminate.

If conditions change and this firm can perfectly price discriminate, what is the value of deadweight loss if this firm can perfectly price discriminate?

Choose 1 answer:
(A) $\$ 4$
(B) $\$ 2$
(C) $\$ 12$
(D) $\$ 0$

Question

The graph shown here illustrates the demand curve, marginal revenue curve, and the cost curves for a profit-maximizing monopolist with constant costs and no fixed costs that cannot currently price discriminate.

If conditions change and this firm can perfectly price discriminate, what is the value of deadweight loss if this firm can perfectly price discriminate?

Choose 1 answer:
(A) $\$ 4$
(B) $\$ 2$
(C) $\$ 12$
(D) $\$ 0$

Accepted Answer

∻Solution∻ ‖ a ⋮ Perfect Price Discrimination: When a firm can perfectly price discriminate, it charges each consumer the maximum price they are willing to pay. This eliminates consumer surplus and captures all the surplus as producer surplus. ‖ ‖ b ⋮ Deadweight Loss: In a monopolistic market without price discrimination, deadweight loss occurs because the monopolist produces less than the socially optimal quantity. However, with perfect price discrimination, the monopolist produces the socially optimal quantity, eliminating deadweight loss. ‖ ‖ c ⋮ Graph Analysis: The graph shows the demand curve (D), marginal revenue curve (MR), and the cost curves (ATC=MC). The shaded region represents the deadweight loss in the absence of price discrimination. With perfect price discrimination, this shaded region would be eliminated. ‖ ‖ d ⋮ Conclusion: Since perfect price discrimination eliminates deadweight loss, the value of deadweight loss in this scenario is $0$. ‖ ∻Answer∻ ⚹ $0$ ⚹ ∻Key Concept∻ ⚹ Perfect Price Discrimination ⚹ ∻Explanation∻ ⚹ Perfect price discrimination allows the monopolist to produce the socially optimal quantity, thereby eliminating deadweight loss. ⚹◊What is the formula for calculating deadweight loss in a market with perfectly price discriminating firm?⍭ Generate me a similar question◊

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