Suppose a monopoly's inverse demand curve is P = 100

Question

Suppose a monopoly's inverse demand curve is P = 100 - Q,it produces a product with a constant marginal cost of 20,and it has no fixed costs.Compared to the consumer surplus if the market were perfectly competitive,consumer surplus is how much less when the monopolist practices perfect price discrimination?
A) 3200
B) 1600
C) 800
D) 0

Quizplus · Accepted Answer

Explanation:The correct answer is A.The consumer surplus in a perfectly competitive market is given by the area of the triangle below the demand curve and above the price line, which is 1/2 * (100 - 20) * 20 = 800.With perfect price discrimination, the monopolist charges each consumer their maximum willingness to pay, which is equal to their demand curve. Therefore, the consumer surplus is zero.Therefore, the consumer surplus is 800 less when the monopolist practices perfect price discrimination.