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Figure: The Profit-Maximizing Output and Price
-(Figure: The Profit-Maximizing Output and Price)Use Figure: The Profit-Maximizing Output and Price.Assume that there are no fixed costs and AC = MC = $200.The monopolist who can perfectly price discriminate will produce an output of _____ diamonds.
A)0
B)6
C)16
D)20

Question

Use the following to answer question:
Figure: The Profit-Maximizing Output and Price 
-(Figure: The Profit-Maximizing Output and Price)Use Figure: The Profit-Maximizing Output and Price.Assume that there are no fixed costs and AC = MC = $200.The monopolist who can perfectly price discriminate will produce an output of _____ diamonds.
A)0 
B)6 
C)16 
D)20

Quizplus · Accepted Answer

In order to perfectly price discriminate, the monopolist charges each individual customer their willingness to pay. Therefore, the price for each diamond will be equal to each customer's willingness to pay. At an output of 16 diamonds, the marginal cost ($200) intersects with the demand curve at a point where some individuals have a willingness to pay greater than $200. This means that the monopolist can charge these customers a price equal to their willingness to pay (which is greater than $200), and continue to make a profit. Therefore, producing 16 diamonds will result in the highest profit for the monopolist who can perfectly price discriminate.

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