A monopolist faces the following demand curve:
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit.If the monopolist were able to perfectly price discriminate,how many units would it sell?
A) 400
B) 500
C) 900
D) 4,200

Question

A monopolist faces the following demand curve: 
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit.If the monopolist were able to perfectly price discriminate,how many units would it sell?
A) 400 
B) 500 
C) 900 
D) 4,200

Quizplus · Accepted Answer

Perfect price discrimination means that the monopolist charges each consumer their individual willingness to pay. In this case, the demand curve shows that there are consumers willing to pay prices ranging from $10 down to $2.

Since the monopolist has constant marginal costs, it is always profitable to sell to any consumer willing to pay more than the marginal cost of production ($2).

By perfectly price discriminating, the monopolist can capture the entire consumer surplus and earn maximum profits.

To find the quantity of units sold, we can set the marginal cost equal to the price at which the last unit is sold, which is the price for the 900th unit.

MC = P900

$2 = $10 - (900/100)

$2 = $10 - $9

$2 = $1

Therefore, the monopolist would sell 900 units at a price of $10 each, earning a total revenue of $9,000.

A Monopolist Faces the Following Demand Curve