Question

 What role does consumer surplus play in the profitability of price discrimination?

 A. Price discrimination is only profitable when the economic profit of the firm(s) exceeds consumer surplus.

 B. Price discrimination is only profitable when there is additional consumer surplus that can be converted to profit.

 C. Price discrimination is profitable regardless of whether there exists any additional consumer surplus that can be converted to profit.

 D. Price discrimination is only profitable when there is no additional consumer surplus that can be converted to profit.

Answer 1

Answer is B.

Price discrimination converts the consumer surplus into profit. Consumers who are willing to pay high are charged higher and consumers who are willing to pay lower are charged lower.

In case of perfect price duscrimination (in which every consumer is charged with highest price he is willing to pay) all consumer surplus is converted to profits.

If there is no consumer surplus then price discrimination is not possible. Higher consumer surplus will lead to higher profitability if producer practices price discrimination.