Chapter 63, Problem 6MCQ

To determine

A firm must know to carry out perfect price discrimination.

Answer to Problem 6MCQ

(c) Customer’s willingness to pay.

Explanation of Solution

To carry out perfect price discrimination, a firm must know the customer’s willingness to pay because the price is charged equal to each group’s willingness to pay and leave zero consumer surplus, and maximizes its profit. Hence, option (c) is correct.

Consumer’s income, competitor’s marginal cost, competitor’s advertising budget, and customer’s price elasticity of demand are not necessarily required to carry out perfect price discrimination. Hence, options (a), (b), (d), and (e) are incorrect.

Economics Concept Introduction

When a monopolist charges a different price to different groups of consumers to their maximum willingness to pay then it is called perfect price discrimination. In perfect price discrimination, monopolists extract all consumer surplus.