Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
-Refer to Figure 10- 4. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the total revenue is represented by the area

Question

Suppose a monopolist faces the demand curve and cost curves shown below.  FIGURE 10- 4
-Refer to Figure 10- 4. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the total revenue is represented by the area

Quizplus · Accepted Answer

Perfect price discrimination means that the monopolist charges each customer their maximum willingness to pay. Therefore, the monopolist captures all the consumer surplus in the market. In this case, the monopolist charges a different price for every unit sold, which is represented by the height of the demand curve at each quantity. The total revenue earned by the monopolist is the sum of the revenue from each unit sold, which is represented by the shaded area under the demand curve. This area is largest when the monopolist produces and sells the quantity where the demand curve intersects the marginal cost curve, which is Q2 in this case. The total revenue earned by the monopolist when it is practicing perfect price discrimination is represented by the area 0P5cQ2.

Suppose a Monopolist Faces the Demand Curve and Cost Curves