📚 Learning Guide
Profit Maximization in Monopolies
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If a monopolist is able to successfully implement imperfect price discrimination, what is the likely effect on consumer surplus in the market?

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Choose the Best Answer

A

Consumer surplus will decrease as the monopolist captures more of the surplus.

B

Consumer surplus will increase as consumers pay less for their goods.

C

Consumer surplus will remain unchanged as prices will still reflect the same average cost.

D

Consumer surplus will be maximized as all consumers will pay the same price.

Understanding the Answer

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Answer

When a monopolist uses imperfect price discrimination, they charge different prices to different consumers based on their willingness to pay. This means that some consumers might pay more while others might pay less, but overall, the monopolist captures more of the total market revenue. Because of this pricing strategy, consumer surplus, which is the benefit consumers get from paying less than they are willing to pay, tends to decrease. For example, if a monopolist sells a movie ticket for $10 to one person who would have paid $15, and $5 to another who would have paid $7, the total consumer surplus is lower than if everyone paid the same lower price. In the end, the monopolist makes more profit, but consumers gain less overall benefit from their purchases.

Detailed Explanation

When a monopolist uses imperfect price discrimination, they charge different prices to different consumers. Other options are incorrect because This answer suggests that consumers will pay less overall; This option implies that prices stay the same, but that’s not true with price discrimination.

Key Concepts

Profit Maximization in Monopolies
Imperfect Price Discrimination
Consumer Surplus
Topic

Profit Maximization in Monopolies

Difficulty

medium level question

Cognitive Level

understand

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