When a monopolist engages in perfect price discrimination,
A) the marginal revenue curve lies below the demand curve.
B) the demand curve and the marginal revenue curve are identical.
C) marginal cost becomes zero.
D) the marginal revenue curve becomes horizontal.

Question

Quizplus · Accepted Answer

In perfect price discrimination, the monopolist charges each customer their reservation price (the maximum price they are willing to pay), which means the firm captures all consumer surplus. As a result, the demand curve for each individual customer becomes the firm's marginal revenue curve, and they are identical. Therefore, choice B is correct. The marginal revenue curve lies below the demand curve in regular monopoly pricing, and marginal cost becoming zero or the marginal revenue curve becoming horizontal are not necessarily related to perfect price discrimination.

When a Monopolist Engages in Perfect Price Discrimination