Question

1 - At the current price of a good, Jessica's consumer surplus equals 12, Lauren's consumer surplus equals 14, and Isabel's consumer surplus is 4. By perfect discrimination, a monopolist could increase his profit by

a) 4

b) 12

c) 16

d) 30

2 - Suppose a firm uses the following price strategy for every customer. The first two unit purchase cost $4 each, and any extra unit costs $3.50. What kind of price discrimination is this>

a) First-degree price discrimination

b) Group Price discrimination

c) non- uniform pricing

d) Uniform pricing

Answer 1

1. The perfect price discrimination is also known as the first degree price discrimination. The monopolist will try to charge the maximum price that a consumer is willing to pay for the product. Consumer surplus is the excess amount that the consumer is willing to pay for the product than the price actually paid by the consumer. To maximize the profit, the monopolist will try to capture all the consumer surplus of all the consumers by charging different price from all three consumers. So, the profit will increase by $12 + $14 + $4 = $30. Therefore, the correct answer is 'Option D'.