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Figure: PPV
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $40.If the cable company practices perfect price discrimination,consumer surplus will be:
A)$180.
B)$100.
C)$40.
D)$0.

Question

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $40.If the cable company practices perfect price discrimination,consumer surplus will be:
A)$180. 
B)$100. 
C)$40. 
D)$0.

Quizplus · Accepted Answer

Perfect price discrimination occurs when the seller charges each buyer their maximum willingness to pay. This leads to the entire consumer surplus being transferred to the seller as there is no surplus remaining for the buyer. In this case, the maximum willingness to pay varies from $80 to $120, but the marginal cost is a constant $40. Therefore, if the cable company practices perfect price discrimination, they will charge each consumer their maximum willingness to pay and earn $40 profit per consumer. The entire consumer surplus will be transferred to the seller, leaving no surplus for the buyer. Thus, the consumer surplus will be zero (D).

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