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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,deadweight loss 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,deadweight loss will be:
A)$180. 
B)$100. 
C)$40. 
D)$0.

Quizplus · Accepted Answer

With perfect price discrimination, the cable company charges each consumer their maximum willingness to pay, eliminating consumer surplus but capturing all of the surplus for themselves. Therefore, there is no deadweight loss. In this scenario, the total surplus is the same as the producer surplus which is $240 ($80 x 3) - ($40 x 3) = $120. Since there is no deadweight loss, the best choice is D, with a deadweight loss of $0.

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