Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The monopolist can capture consumer surplus by charging higher prices to consumers with higher willingness to pay.
B
Price discrimination eliminates the need for firms to produce at marginal cost.
C
The firm reduces its output to increase prices across the board.
D
It allows the firm to lower prices universally, benefiting all consumers.
Understanding the Answer
Let's break down why this is correct
Answer
Price discrimination occurs when a monopolist charges different prices to different customers for the same product. The increase in market efficiency happens because the monopolist can capture more consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay. For example, if a movie theater charges adults $12 and students $8, it can attract more students who might not buy a ticket at the higher price. This way, the theater earns more revenue and fills more seats, leading to better resource use and higher overall satisfaction for both types of customers. Therefore, the underlying reason for increased market efficiency is that price discrimination allows the monopolist to serve more consumers and make better use of their product.
Detailed Explanation
The monopolist can charge different prices based on what people are willing to pay. Other options are incorrect because Some might think that price discrimination means firms can ignore costs; It's a common mistake to think that reducing output helps prices.
Key Concepts
Price Discrimination
Market Efficiency
Consumer Surplus
Topic
Price Discrimination and Efficiency
Difficulty
hard level question
Cognitive Level
understand
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