Question

A. If a monopoly faces an inverse demand curve of p​Q, has a constant marginal and average cost of ​$​, and can perfectly price​ discriminate, what is its​ profit? What are the consumer​ surplus, welfare, and deadweight​ loss? How would these results change if the firm were a​ single-price monopoly?

B. Profit from perfect price discrimination ​(​) is ​$ 64800. ​(Enter your response as a whole​ number.)

C. Corresponding consumer surplus is ​(enter your response as whole ​numbers)​: CS​$ ​ welfare is W​$ and deadweight loss is

Answer 1

In a scenario of perfect price discrimination, a monopoly captures the entire consumer surplus, resulting in a profit and welfare of $64800, with no consumer surplus or deadweight loss. With a single-price monopoly, there would be a lower total surplus and a deadweight loss.

Step-by-step explanation:

When a monopoly can perfectly price discriminate, it charges each consumer their maximum willingness to pay, effectively capturing the entire area under the demand curve as profit. This means the consumer surplus is zero as consumers are paying the exact value they place on each unit of the good. Consequently, the welfare is the sum of the monopolist's profit and the consumer surplus, which in the case of perfect price discrimination, is just the monopolist's profit. There is no deadweight loss because the quantity produced is the same as in a competitive market.

For a single-price monopoly, the monopoly produces less than the socially optimal quantity and charges a higher price than in a competitive market. This results in a lower total surplus, comprised of monopolist profit, consumer surplus, and a deadweight loss due to fewer transactions than in a competitive market.

Given the monopoly's profit from perfect price discrimination is $64800, this would also be the welfare, with consumer surplus at $0 and deadweight loss also at $0 in a scenario of perfect price discrimination.