A monopolist faces inverse demand $P = 400 - 4 Q ^ { d }$ and has constant marginal cost $M C = 80$ . If this monopolist changes from a policy of uniform pricing to a policy of first-degree price discrimination, deadweight loss will decrease by:
A) 0
B) 1,600
C) 3,200
D) 12,800

Question

Quizplus · Accepted Answer

First-degree price discrimination allows the monopolist to capture all consumer surplus, eliminating deadweight loss. The deadweight loss under uniform pricing is the area of the triangle between the demand curve and the marginal cost curve, which is $\frac{1}{2} \times (400 - 80) \times 80 = 12,800$. The decrease in deadweight loss is equal to the initial deadweight loss, which is 3,200.

A Monopolist Faces Inverse Demand P=400−4QdP = 400 - 4 Q ^ { d }P=400−4Qd

A Monopolist Faces Inverse Demand $P = 400 - 4 Q ^ { d }$