Which of the following statements regarding a monopoly's first-degree price discrimination is correct?
A)With first-degree price discrimination, consumer surplus is small, yet still greater than zero.
B)With first-degree price discrimination, producer surplus is lower than with uniform pricing.
C)With first-degree price discrimination, deadweight loss is large.
D)With first-degree price discrimination, total surplus is greater than when the monopoly charges a uniform price.

Question

Quizplus · Accepted Answer

With first-degree price discrimination, the monopoly can charge each consumer their maximum willingness to pay, resulting in higher profits for the firm and no consumer surplus. However, total surplus (producer surplus + consumer surplus) is still greater than when the monopoly charges a uniform price. Additionally, there is no deadweight loss with first-degree price discrimination as the monopoly still produces where marginal revenue equals marginal cost. Therefore, option D is the correct statement. With first-degree price discrimination, the monopoly is able to charge each consumer their maximum willingness to pay, maximizing their profit and leading to a larger total surplus compared to uniform pricing. Consumer surplus is reduced to zero in this case, but the increase in producer surplus more than makes up for it. Deadweight loss is also minimized with perfect price discrimination.

Which of the Following Statements Regarding a Monopoly's First-Degree Price