Assume that a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur?

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BlackTom AI · Accepted Answer

To analyze the effects of perfect price discrimination, we first recap what happens under a single-price monopoly versus charging each consumer their willingness to pay.
Option 1: Economic profit will decrease. In reality, with perfect price discrimination the monopolist captures the entire area under the demand curve that lies above marginal cost, which typically increases profit rather than decreases it. This option misstates the impact on profit.
Option 2: The quantity of output produced will increase. This is the core consequence of price discrimination: by charging each buyer their exact willingness to pay, the monopolist can sell additional units that wouldn’t have been sold at a single price, moving output closer to the socially efficient level where marginal cost equals marginal revenue (which, under perfect price discrimination, equals price for each unit). As a result, total output rises.
Option 3: Total cost will decrease. Total cost depends on the level of output and input costs, not on the pricing scheme per se. If output rises due to price discrimination, total cost would typically rise as well (since more units are produced), so this statement is generally false.
Option 4: Demand will decrease. The demand curve itself isn’t shifted inward by price discrimination; rather, individual consumers pay different prices. The overall willingness to buy at each quantity is still governed by the same demand, so this option is not correct.
Option 5: Consumer surplus will increase. Under perfect price discrimination, the producer captures the entire surplus from consumers, leaving no (or near-zero) consumer surplus. Therefore, consumer surplus does not increase; it collapses. This option contradicts the standard result of price discrimination.

Taken together, the statements that align with perfect price discrimination are those describing higher output and zero (or eliminated) consumer surplus, with profits rising due to capture of surplus. The only option that correctly identifies the primary quantitative change is that output increases.

AP Economics-Hillebrand Micro Unit 4 Exam v2- Requires Respondus LockDown Browser

Assume that a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur?

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