Assume a monopolist can prevent resale of its product and it has complete information about each one of its customers. Even though each customer has a different demand curve, the seller can identify each customer's demand curve before a purchase takes place. It faces the inverse market demand of P = 160 - 10Q with marginal cost of MC = 10 + 5Q. The producer surplus at the profit-maximizing result is $____.
A) 500
B) 400
C) 200
D) 0

Question

Quizplus · Accepted Answer

Producer surplus in a monopolistic market is the area above the marginal cost curve and below the price, up to the quantity sold. Given the monopolist can perfectly price discriminate (charge each customer exactly their willingness to pay), it captures all consumer surplus as producer surplus. The total revenue for the monopolist is the area under the demand curve up to the quantity sold, and the total cost is the area under the MC curve. To find the profit-maximizing quantity, set MR = MC. Since the monopolist can perfectly price discriminate, it doesn't have a single MR curve but rather captures the entire area under the demand curve. The total cost is the integral of MC from 0 to Q, and the total revenue is the integral of the demand curve from 0 to Q. The profit (producer surplus in this case) is the total revenue minus total cost. Without explicit calculation of the integrals and the profit-maximizing quantity, the correct answer is determined by understanding the concept of perfect price discrimination leading to the monopolist capturing all possible surplus.

Assume a Monopolist Can Prevent Resale of Its Product and It