Question

Michael the Magnificent is a mind-reader renowned for his abilities. He reads the minds of prospective customers and charges them their exact willingness to pay for each individual item they buy. He does not offer discounts for buying more than one item. Which of the following statements is true? Michael is second degree price discriminating. Michael does not have pricing power Michael does not have the ability to classify customers. Michael is first degree price discriminating. Michael is not increasing his producer surplus by price discriminating

Answer 1

The price discrimination is the process of setting different prices for the same commodity for the different customers. The price discrimination is usually practiced in the monopoly this is because in monopoly the firm has got market power. There are three degree of price discrimination, in third degree price discrimination the seller divides the customers into different sub categories and charges different prices for each category. In second degree price discrimination the buyers are divided into different groups and charges different price for each category. In first degree price discrimination the seller charges a price that is equal to the willingness to pay for the commodity. In this case the seller is using the first degree price discrimination.

Ans: Michael is first degree price discriminating.