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Answer to Question #49394 in Microeconomics for susie

Question #49394
If a monopolist engages in perfect (first-degree) price discrimination, then relative to uniform pricing:
profits will increase and output will fall
both profits and output will increase
both profits and output will decrease
its demand curve will lie below its marginal revenue curve
Expert's answer
First degree price discrimination requires the monopoly seller of a good or service to know the absolute maximum price (or reservation price) that every consumer is willing to pay. By knowing the reservation price, the seller is able to sell the good or service to each consumer at the maximum price he is willing to pay, and thus transform the consumer surplus into revenues. So the profit is equal to the sum of consumer surplus and producer surplus. The marginal consumer is the one whose reservation price equals to the marginal cost of the product. The seller produces more of his product than he would to achieve monopoly profits with no price discrimination, which means that there is no deadweight loss. Examples of where this might be observed are in markets where consumers bid for tenders, though, in this case, the practice of collusive tendering could reduce the market efficiency.

So, if a monopolist engages in perfect (first-degree) price discrimination, then relative to uniform pricing:
b) both profits and output will increase

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