Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It allows the firm to charge all consumers the same price, maximizing total revenue.
B
It enables firms to align prices with individual willingness to pay, increasing total surplus.
C
It leads to reduced consumer welfare by eliminating competition.
D
It necessitates that firms produce at a loss to maintain customer base.
Understanding the Answer
Let's break down why this is correct
Answer
Price discrimination occurs when a company charges different prices to different customers for the same product. In monopolistic settings, this can lead to market efficiency because it allows the seller to capture more consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay. By charging higher prices to those who can afford to pay more and lower prices to those who cannot, the monopolist can sell more units of the product than if they charged a single price. For example, a movie theater might charge full price for adults but offer discounted tickets for children and seniors. This strategy helps the theater maximize its revenue while ensuring that more people can enjoy the movie, leading to a more efficient allocation of resources.
Detailed Explanation
Price discrimination helps companies set different prices for different customers. Other options are incorrect because Some might think that charging everyone the same price is best; It's a common belief that price discrimination hurts consumers.
Key Concepts
Price Discrimination
Allocative Efficiency
Monopolistic Pricing Strategies
Topic
Price Discrimination and Efficiency
Difficulty
medium level question
Cognitive Level
understand
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