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Scenario: A Small-Town Monopolist
A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and 175 subscriptions when the price is $10 a week.The MC for the provision of the cable is $5 a week.There are no fixed costs.
-(Scenario: A Small-Town Monopolist)Use Scenario: A Small-Town Monopolist.Compared with charging a single price,the deadweight loss:
A) increases when this monopolist price-discriminates.
B) decreases when this monopolist price-discriminates.
C) stays the same when this monopolist price-discriminates.
D) is equal to zero.

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Quizplus · Accepted Answer

Price discrimination allows the monopolist to charge different prices to different groups of customers based on their willingness to pay. In this scenario, the monopolist can charge a higher price of $15 to customers who are willing to pay more and a lower price of $10 to customers who are more price-sensitive. This will increase the overall quantity sold and reduce the deadweight loss compared to charging a single price of $15, as more customers will be able to afford the service at the lower price point. Therefore, the deadweight loss decreases when this monopolist price-discriminates.

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