If a firm practises perfect price discrimination,
A)its marginal cost curve is horizontal.
B)it will maximize total revenue.
C)it does not produce the quantity at which marginal revenue equals marginal cost.
D)it will produce the quantity at which the marginal revenue curve intersects the average total cost curve.
E)it will produce the quantity at which the marginal cost curve intersects the demand curve.

Question

Quizplus · Accepted Answer

In perfect price discrimination, the firm charges each individual customer the maximum price they are willing to pay, based on their individual demand curve. This means that the demand curve for the firm is also its marginal revenue curve. As the firm is still subject to the law of diminishing marginal returns, the optimal quantity to produce will be where marginal cost intersects with the demand curve (which is also the marginal revenue curve). However, as the firm charges different prices to different customers, there is no average total cost curve that is relevant in this case. Therefore, option D is incorrect. Option A is also incorrect, as the marginal cost curve could take any shape as long as it intersects with the demand curve at the optimal quantity. Option B is not necessarily true, as the firm's objective may be to maximize profits instead of maximizing total revenue. Option C is also not true, as the firm still needs to produce at the point where marginal revenue equals marginal cost in order to maximize profits.

If a Firm Practises Perfect Price Discrimination