Reference: Ref 14-3 (Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond a units of output?
A) A firm will not sell beyond a units of output. The firm will only sell exactly a, as it is the profit-maximizing rate of output for this firm.
B) The marginal cost is less than consumers' willingness to pay for these units.
C) The marginal cost is greater than consumers' willingness to pay for these units.
D) A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units.

Question

Reference: Ref 14-3 (Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond a units of output?
A) A firm will not sell beyond a units of output. The firm will only sell exactly a, as it is the profit-maximizing rate of output for this firm. 
B) The marginal cost is less than consumers' willingness to pay for these units. 
C) The marginal cost is greater than consumers' willingness to pay for these units. 
D) A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units.

Quizplus · Accepted Answer

In perfect price discrimination, the firm charges each consumer their willingness to pay, which means that the marginal revenue from each unit sold is equal to the consumer's willingness to pay. If the marginal cost of producing additional units is less than the marginal revenue, the firm will choose to sell those units and increase their profits. Therefore, the firm would sell additional units beyond a units of output as long as the marginal cost is less than the consumer's willingness to pay.

Reference: Ref 14-3 (Figure: PPD) Refer to the Figure