Question

State whether the following statements are True or False

A single-price monopolist maximizes profit where marginal benefit is at its maximum.

A single-price monopolist maximizes profit where marginal cost is at its minimum.

The profit-maximizing point for a single-price monopolist is also the revenue maximizing point.

In general, price discrimination raises the efficiency of markets.

explain/show why.

Answer 1

1) False. Single price monopolist will maximise profit where MR = MC. At this point marginal benefits are not maximum but MR curve will be downward sloping.

2) False. MC will not be minimum but it will be upward sloping where it cuts the MR.

3) False. Revenue will maximise where MR is zero but MR of profit maximising monopolist will be positive.

4) Price discrimination raises the efficiency in the sense that it decreases the dead weight loss. Single price monopolist have some dead weight loss but Perfect price discriminating monopolist will have zero dead weight loss, also it will have zero consumer surplus but over all efficiency will increase because dead weight loss becomes zero.

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