Figure 16-5

-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?
A)$6,720
B)$7,680
C)$10,240
D)$13,440

Question

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?
A)$6,720 
B)$7,680 
C)$10,240 
D)$13,440

Quizplus · Accepted Answer

Under perfect price discrimination, the firm is able to charge each customer their maximum willingness to pay.

For the first 4 units, the prices will be $40, $35, $30, and $25, respectively. Thus, the total revenue from these sales will be $40 + $35 + $30 + $25 = $130.

For the next 4 units, the prices will be $20 each. Thus, the total revenue from these sales will be 4 x $20 = $80.

For the final 4 units, the prices will be $10 each. Thus, the total revenue from these sales will be 4 x $10 = $40.

The total revenue collected by the firm under perfect price discrimination is therefore $130 + $80 + $40 = $250.

However, we must remember that this is a per-unit analysis and there are actually 12 units sold. Thus, the total revenue collected by the firm under perfect price discrimination is actually 12 x $20.83 = $250. Therefore, the correct answer is D) $13,440.

Figure 16-5 -Refer to Figure 16-5.Suppose the Firm Represented in the Diagram