When a firm uses price discrimination successfully, the result is that producer surplus _____ while deadweight...

When a firm uses price discrimination successfully, the result is that producer surplus _____ while deadweight loss _____ compared to a single-price monopoly.

	A.	falls; rises because less output is produced with price discrimination
	B.	rises; falls because output increases with price discrimination
	C.	rises; rises because less output is produced with price discrimination
	D.	falls; falls because output increases with price discrimination

Solutions

Expert Solution

The correct answer is (B) rises; falls because output increases with price discrimination

When a firm uses price discrimination successfully then it will charge different consumers(or Groups) different price according to their willingness to pay. If someone has willingness to pay greater than its marginal cost of producing that good then it will sell it to that consumer but when it charges single price then it will sell its output to those only whose Willingness to pay is greater than or equal to price at which Marginal Revenue = Marginal Cost.

Hence It will sell more output to the consumer and it will charge according to there willingness to Pay and hence Its Profit and Producer Surplus will increase. Also as it is selling more unit and hence lesser amount of resources are wasted and hence deadweight loss will falls(Note : Under perfect price discrimination Total Surplus is equal to total surplus under perfect competitive market).

Hence the, correct answer is (B) rises; falls because output increases with price discrimination

Rahul Sunny answered 1 year ago

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