Perfect price discrimination
A)eliminates deadweight loss.
B)reduces profits to the monopolist.
C)decreases the total quantity sold by the monopolist.
D)requires arbitrage in order for the monopolist to maximize profits.

Question

Quizplus · Accepted Answer

Perfect price discrimination charges each consumer their maximum willingness to pay, eliminating deadweight loss and maximizing overall revenue for the monopolist. Therefore, choice A is correct. Choice B is incorrect because perfect price discrimination actually increases profits for the monopolist, as they are able to extract the most revenue possible from each consumer. Choice C is incorrect because perfect price discrimination can lead to an increase in the total quantity sold, as consumers who were previously priced out of the market by a uniform price may now be able to purchase the product at a lower price. Choice D is incorrect because perfect price discrimination does not require arbitrage, as the monopolist is able to charge each consumer their individual maximum willingness to pay directly.

Perfect Price Discrimination