If a monopolist engages in perfect price discrimination:
A)it produces the efficient quantity of output.
B)there is no producer surplus.
C)the producer surplus is equal to the monopoly profit.
D)the government will impose an average cost pricing rule on the monopoly.

Question

Quizplus · Accepted Answer

Perfect price discrimination allows the monopolist to charge each individual customer the maximum amount they are willing to pay for each unit, which means there is no deadweight loss and the efficient quantity of output is produced. This also means that the monopolist captures all consumer surplus, as each customer pays their willingness to pay. However, there is still producer surplus as the monopolist is able to earn a profit from charging the maximum possible price to each customer. The government is unlikely to impose an average cost pricing rule on the monopoly if they engage in perfect price discrimination as it is already producing the efficient quantity of output.

If a Monopolist Engages in Perfect Price Discrimination