Question

Price discrimination is a rational strategy for a profit-maximizing monopolist when group of answer choices

O the monopolist finds itself able to produce only limited quantities of output.
O consumers are unable to be segmented into identifiable markets.
O the monopolist wishes to increase the deadweight loss that results from profit-maximizing behavior.
O there is no opportunity for arbitrage across market segments.

Answer 1

A monopolist identifies its profit-maximizing quantity of output and decides what price to charge by practicing price discrimination, which involves charging different prices to different groups of customers based on their willingness to pay.

Step-by-step explanation:

A monopolist identifies its profit-maximizing quantity of output and then decides what price to charge based on the concept of price discrimination. Price discrimination occurs when a seller charges different prices to different groups of customers, based on their willingness to pay. This strategy allows the monopolist to capture more consumer surplus and maximize their profits.

Perfect price discrimination is a scenario where the monopolist is able to charge each buyer exactly what they are willing to pay. In this case, the monopolist would produce more output, similar to what would be produced in a perfectly competitive industry. However, there would be no consumer surplus, as each buyer is paying the maximum price they are willing to pay.

For example, consider an airline that charges different prices for business class and economy class seats. The business class customers, who are generally willing to pay more for comfort and extra amenities, are charged a higher price compared to economy class passengers. By segmenting the market based on willingness to pay, the airline maximizes its profits.