Question

A monopolist's profits with price discrimination will be Select one: 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

Answer:

c. higher than if the firm charged just one price because the firm will capture more consumer surplus. 

Explanation:

Price discrimination is when a producer charges different prices for the same goods or services to different customers.

For price discrimination to be successful, the producer should be able to successfully determine the willingness to pay of the different groups of consumers and charge consumers at their willingness to pay.

Price discrimination aims to reduce consumer surplus.

Consumer surplus is the difference between the willingness to pay of consumers and the price they actually pay.

An example of consumer surplus:

Assume a producer sells his pens for $ 10 dollars. If he sells 100 pens, his total revenue would be $1000. Assume there are two groups of customers based on their willingness to pay. The first group of customers have a willingness to pay of $15 And the second group have a willingness to pay of $12. Assume there are 50 people in each group. If the supplier charges the two groups at their willingness to pay, the total revenue of the supplier = ($15×50) + ($12×50) = $1350.

The total revenue is higher with price discrimination when compared with no price discrimination.

I hope my answer helps you.