Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
demand
B
supply
C
average cost
D
total revenue
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly price discriminating market, the firm's marginal revenue curve aligns with the demand curve. This means that the firm can charge each consumer the maximum price they are willing to pay for each unit of a product. By doing this, the firm captures all the consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay. For example, if a concert ticket is worth $100 to one person but $50 to another, the firm can charge $100 to the first person and $50 to the second, maximizing its total revenue and profits. This approach allows the firm to efficiently allocate resources and meet the varying willingness to pay among consumers.
Detailed Explanation
In this type of market, the firm charges each customer the highest price they are willing to pay. Other options are incorrect because Some might think that supply affects how much money a firm makes; People may confuse average cost with profit.
Key Concepts
Price Discrimination
Marginal Revenue
Allocative Efficiency
Topic
Price Discrimination and Efficiency
Difficulty
easy level question
Cognitive Level
understand
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