How can price discrimination improve efficiency in a market compared to a single-price situation?
A)The price is pushed down to the level of average costs.
B)The average cost ends up at the level of minimum average costs.
C)The company's output is where marginal cost equals the last customer's marginal benefit.
D)Everyone willing and able to pay for the product gets the same low price.

Question

Quizplus · Accepted Answer

Price discrimination allows companies to charge different prices to different customers based on their willingness to pay, which can increase revenue and profits. In a single-price situation, the company may not be able to sell to all potential customers due to the fixed price. With price discrimination, the company can sell to those willing to pay a higher price, while also offering a lower price to those who are not willing to pay more. This allows the company to maximize output, as they are able to sell to more customers overall. Additionally, by charging a higher price to those willing to pay more, the company can capture more of the consumer surplus, which can lead to higher profits. The optimal price in a price discrimination scenario is where the marginal cost equals the last customer's marginal benefit, which leads to a more efficient allocation of resources.

How Can Price Discrimination Improve Efficiency in a Market Compared