Which of the following best describes the outcome achieved by a perfectly price-discriminating monopolist?

• A. Produces less than the socially efficient quantity and leaves some consumer surplus in the market.
• B. Produces the socially efficient quantity where marginal cost equals demand and captures all consumer surplus as profit.
• C. Charges a single price to all consumers, maximizing total revenue but not profit.
• D. Cannot earn any economic profit due to perfect competition.

Answer: (B)

Verified step by step guidance

1. Understand the concept of perfect price discrimination: it means the monopolist charges each consumer their maximum willingness to pay, capturing all consumer surplus.
2. Recall that in perfect price discrimination, the monopolist produces where the marginal cost (MC) equals the demand curve (which reflects consumers' willingness to pay), thus achieving the socially efficient quantity.
3. Recognize that because the monopolist charges each consumer their exact willingness to pay, there is no consumer surplus left; all surplus is converted into producer surplus (profit).
4. Contrast this with a single-price monopolist, who restricts output below the socially efficient level to maximize profit, leaving some consumer surplus and deadweight loss.
5. Conclude that a perfectly price-discriminating monopolist produces the socially efficient quantity, eliminates deadweight loss, and captures all consumer surplus as profit.