Question

A monopolist that practices perfect price discrimination A. charges one group of buyers a higher price than another group, such as offering a student discount. B. creates no deadweight loss. C. charges a higher price but produces the same monopoly level of output as when a single price is charged.

Answer 1

Answer: B. creates no deadweight loss.

Explanation: Perfect Price Discrimination is charging for goods and services whatever price the market (end users and consumers) is willing to bear. Here, the company separates the market into groups (based on their preferences) that are charged based on their willingness to pay.

A monopoly that practices perfect price discrimination creates no deadweight loss which are the potential gains that did not go to the producer or the consumer. In this, they have perfectly segmented the market to maximize their profits, as a result can continue to sell extra units as long as additional revenue surpasses the marginal cost of production.

Answer 2

Answer:

The correct answer is letter "C": charges a higher price but produces the same monopoly level of output as when a single price is charged.

Explanation:

Price discrimination refers to setting prices differently according to certain consumers' features such as age, location or income. There should always be a reasonable excuse for the prices to be established at different levels for different people otherwise it would represent discrimination.

Free-price discrimination takes place when a monopolist offers a good or service setting the price at the maximum level different consumers can afford. The production level of the monopolist keeps being the same which allows the company to book higher revenues.