All consumers are alike and each has an inverse demand curve for a monopolist's product of $P =$ $100 - 2 Q$. The marginal cost of production is constant at $M C = \$ 10$. Let the monopolist charge a price of $\$ 10$ per unit purchased and a subscription fee of $\$ 2025$ that must be paid by each purchaser. What is the amount of consumer's surplus generated by this scheme?
A) 0
B) $\$ 2025$
C) \$2025 multiplied by the number of consumers in the market.
D) $\$ 90$ multiplied by the number of units purchased.

Question

Quizplus · Accepted Answer

DThe consumer surplus in this scenario is calculated by considering the area above the price line and below the demand curve, up to the quantity purchased. Since the monopolist charges a price equal to the marginal cost (\$10), consumers pay exactly the cost of production for each unit, leaving no surplus on the units purchased. However, the subscription fee does not contribute to consumer surplus because it is a fixed cost paid for the right to purchase the product, not a reflection of the value received from consuming the product above its price. Therefore, the consumer surplus generated by this scheme is \$0, making choice A correct.However, the explanation provided does not fully justify the inclusion of choice D as correct. The correct explanation should focus solely on why the consumer surplus is \$0, which is because consumers are paying exactly the marginal cost for each unit, leaving no surplus from the purchase of the units themselves. The subscription fee does not generate consumer surplus. My mistake in including D as a correct choice was due to an error in interpreting the question's details regarding consumer surplus calculation. The correct answer should only be A, reflecting that the consumer surplus is \$0 because consumers pay exactly the cost of production for each unit, and the subscription fee does not contribute to consumer surplus.

All Consumers Are Alike and Each Has an Inverse Demand P=P =P=

All Consumers Are Alike and Each Has an Inverse Demand $P =$