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Figure: PPD
-(Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond a units of output?
A) A firm will not sell beyond a units of output. The firm will only sell exactly a, as it is the profit-maximizing rate of output for this firm.
B) The marginal cost is less than consumers' willingness to pay for these units.
C) The marginal cost is greater than consumers' willingness to pay for these units.
D) A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units.

Question

Use the following to answer questions:
Figure: PPD 
-(Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond a units of output?
A) A firm will not sell beyond a units of output. The firm will only sell exactly a, as it is the profit-maximizing rate of output for this firm. 
B) The marginal cost is less than consumers' willingness to pay for these units. 
C) The marginal cost is greater than consumers' willingness to pay for these units. 
D) A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units.

Quizplus · Accepted Answer

If a firm perfectly price discriminates, it charges each individual consumer the maximum price they are willing to pay for each unit of output. This means that the marginal revenue the firm earns from selling additional units is equal to each individual consumer's willingness to pay for that unit. As long as the marginal cost of producing those additional units is less than each consumer's willingness to pay, the firm will continue to produce and sell those units. Therefore, the correct answer is B.

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