The following figure depicts the downward-sloping market demand (D)curve for a five-day western Caribbean cruise on Carnival Cruise Lines.The price (P)is per person in U.S.dollars,and the quantity (Q)is the number of passenger tickets sold.This figure also shows the company's relevant marginal revenue (MR)curve and marginal cost (MC)curve.Use this figure to answer the following questions:

-If Carnival Cruise Lines moves from a perfect price-discrimination model to a monopolist model that charges a single price,there would be a ________ in total welfare.
A) gain of $800,000
B) loss of $400,000
C) gain of $400,000
D) loss of $1.2 million
E) gain of $1.2 million

Question

The following figure depicts the downward-sloping market demand (D)curve for a five-day western Caribbean cruise on Carnival Cruise Lines.The price (P)is per person in U.S.dollars,and the quantity (Q)is the number of passenger tickets sold.This figure also shows the company's relevant marginal revenue (MR)curve and marginal cost (MC)curve.Use this figure to answer the following questions:
 
-If Carnival Cruise Lines moves from a perfect price-discrimination model to a monopolist model that charges a single price,there would be a ________ in total welfare.
A) gain of $800,000 
B) loss of $400,000 
C) gain of $400,000 
D) loss of $1.2 million 
E) gain of $1.2 million

Quizplus · Accepted Answer

Under perfect price discrimination, Carnival Cruise Lines charges each customer their maximum willingness to pay, resulting in a total welfare of $8 million. 
However, if they move to a monopolist model with a single price, they will charge at the point where marginal revenue equals marginal cost (MR=MC), which results in a higher price and lower quantity sold. This leads to a total welfare of $7.6 million, a loss of $400,000 compared to perfect price discrimination. Therefore, the best choice is B, which represents a loss of $400,000 in total welfare.

The Following Figure Depicts the Downward-Sloping Market Demand (D)curve for a Five-Day