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Under first-degree price discrimination, a monopolist produces the efficient output. Is this true or false? Explain...

Under first-degree price discrimination, a monopolist produces the efficient output. Is this true or false? Explain using an appropriate diagram.

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Expert Solution

TRUE .

Under first degree price discrimination the firm charges each consumer his or her reservation price . Thus there is no consumer surplus left . The total surplus is equal to producer surplus . But here there is no dead weight loss created because the firm produces till the point where price is equal to marginal cost . The last consumer who has the lowest reservation price is considered if his reservation price matches the marginal cost . Thus first degree of price discrimination will always have as a result a Pareto efficient level of output as marginal willingness to pay will be equal to marginal cost .

Rahul Sunny answered 2 years ago
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