Use the following to answer question:
Figure: PPV
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $40.If the cable company practices perfect price discrimination,producer surplus will be:
A)$180.
B)$100.
C)$40.
D)$0.

Question

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $40.If the cable company practices perfect price discrimination,producer surplus will be:
A)$180. 
B)$100. 
C)$40. 
D)$0.

Quizplus · Accepted Answer

Perfect price discrimination means that the cable company charges each customer their maximum willingness to pay. In this case, the maximum willingness to pay varies for each customer and can be found by looking at the demand curve. The highest willingness to pay is $220, so this is what the cable company charges that customer. The other customers are willing to pay less, so they are charged lower prices. The total revenue from these customers is $440, which is equal to their total consumer surplus. Producer surplus is equal to total revenue minus total cost, which is $440 - ($40 x 6) = $180.

Use the Following to Answer Question