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E202Exam3.8 - Why or why not Answer No there is not any...

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4. (10 pts) Suppose the monopolist in Problem 3 can perfectly price discriminate. a. Derive producer surplus, consumer surplus, and total economic surplus. Compare to the previous values. Answer : The perfectly-discriminating monopolist charges the reservation price for each consumer whose reservation price exceeds marginal cost, in this case Q = 15, and thus captures the full economic surplus. Producer surplus is total economic surplus of ($30 - 0) 15/2 = $225, and consumer surplus is zero. Producer surplus rises by $75, consumer surplus falls by $50, and total economic surplus rises by $25. b. Is there any deadweight loss due to monopoly now?
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Unformatted text preview: Why or why not? Answer : No, there is not any deadweight loss due to the monopoly. By being able to charge each customer their reservation price, a perfectly-discriminating monopolist escapes the troubles of a single price monopolist. Selling an additional unit does not require lowering the price of other units, so marginal revenue is the price, not less than the price. Therefore, a perfectly-discriminating monopolist is willing to sell all units for which the buyer’s valuation exceeds the monopolists’ marginal cost and achieves full efficiency....
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