Question

The marginal revenue curve for a seller that practices first-degree price discrimination is:

1) i. the same as its average revenue curve
2) ii. located below its average revenue curve
3) iii. located above its average revenue curve
4) iv. the same as its demand curve
5) v. located below its demand curve
6) vi. located above its demand curve

Answer 1

The marginal revenue curve for a seller practicing first-degree price discrimination is the same as its demand curve, because they can charge the maximum price for each unit, equating consumer willingness to pay with marginal revenue for each unit sold.

Step-by-step explanation:

For a seller practicing first-degree price discrimination, the concept of marginal revenue is uniquely characterized. In an ordinary market structure, the marginal revenue curve typically lies below the demand curve because as a monopolist increases quantity, they must lower the price of all units sold, which affects marginal revenue. However, in first-degree price discrimination, the seller is able to charge each unit at the maximum price a consumer is willing to pay, essentially matching the demand curve at every point. Therefore, the marginal revenue for each additional unit sold is equal to the price that the consumer is willing to pay for that unit.

Given this, the correct answer to the student's question is that the marginal revenue curve for a seller that practices first-degree price discrimination is the same as its demand curve.