Question

A monopolist's profits with price discrimination will be

A) lower than if the firm charged a single, profit-maximizing price.
B) the same as if the firm charged a single, profit-maximizing price.
C) higher than if the firm charged just one price because the firm will capture more consumer surplus.
D) higher than if the firm charged a single price because the costs of selling the good will be lower.

Answer 1

A monopolist's profits are higher with price discrimination compared to charging a single price, as it captures more consumer surplus and achieves maximum possible profits.

Step-by-step explanation:

A monopolist's profits with price discrimination will be higher than if the firm charged just one price because the firm will capture more consumer surplus. Perfect price discrimination allows the monopolist to charge each consumer the maximum that they would be willing to pay, thereby converting potential consumer surplus into additional profits for the firm.

In the scenario of perfect price discrimination, the monopolist produces the same level of output as a perfectly competitive industry would, but no consumer surplus exists because each buyer is paying exactly what they think the product is worth. This means that the monopolist is able to earn the maximum possible profits, higher than if a single price were charged.

Answer 2

A monopolist's profits with price discrimination are typically higher because they can charge consumers different prices based on their willingness to pay, capturing more consumer surplus and maximizing profits.

Step-by-step explanation:

A monopolist's profits with price discrimination will typically be higher than if the firm charged a single, profit-maximizing price. This strategy allows the firm to capture more consumer surplus by charging different prices to different consumers based on their willingness to pay. In the scenario of perfect price discrimination, the monopolist would produce more output, akin to what would be produced by a perfectly competitive industry, and there would be no consumer surplus since each buyer pays exactly what they think the product is worth, allowing the monopolist to earn the maximum possible profits.

Price discrimination enables the monopolist to select the profit-maximizing level of output where marginal revenue (MR) equals marginal cost (MC), and then charge varying prices for that quantity of output as determined by individual market demand curves. This results in profits above average cost, maximizing the monopolist's earnings.