Chapter 11R, Problem 25MCQ

To determine

The correct option for given situation where perfect price discrimination is enjoyed by the firm.

Answer to Problem 25MCQ

Option b is correct answer.

Explanation of Solution

Explanation for correct option:

b.

In perfect price discrimination, monopoly firms can charge the prices that consumers are willing to pay. Due to this reason, consumer surplus is less and out produced by the firm is more. Therefore, option b is correct.

Explanation for incorrect options:

a.

Price discrimination can be done by the monopolist firms where they can charge prices accordingly. If prices are kept higher then there will be more consumer surplus whereas if prices are according to the consumer’s willingness then there will be less consumer surplus. Therefore, option a is incorrect.

c.

More output will be produced where some customers have to pay more and some will pay less price for the product under perfect price discrimination. Therefore, option c is incorrect.

d.

Though the output level is more in perfect price discrimination this option is invalid. Therefore, option d is incorrect.

e.

Customers usually pay the amount that they are willing to purchase the goods at. This will lower the consumer surplus almost to zero under perfect price discrimination. Therefore, option e is incorrect.

Economics Concept Introduction

Price Discrimination: Price discrimination refers to the prices at which different prices for same products are charged to different people. For instance, prices of movie tickets are different for children or senior citizens.