When a monopolist practices perfect price discrimination, which of the following outcomes occurs?

• A. Deadweight loss increases compared to single-price monopoly.
• B. Total output is lower than under single-price monopoly.
• C. Consumer surplus is eliminated and all surplus is captured by the monopolist as profit.
• D. The monopolist charges the same price to all consumers.

Answer: (C)

Verified step by step guidance

1. Understand the concept of perfect price discrimination: it occurs when a monopolist charges each consumer their maximum willingness to pay, capturing all consumer surplus.
2. Recall that under single-price monopoly, the monopolist charges one price to all consumers, resulting in some consumer surplus and deadweight loss due to restricted output.
3. Analyze the effect of perfect price discrimination on output: since the monopolist charges each consumer their willingness to pay, they sell to all consumers whose willingness to pay is above marginal cost, increasing total output to the efficient level.
4. Consider the impact on consumer surplus and deadweight loss: perfect price discrimination eliminates consumer surplus because the monopolist captures it all, and deadweight loss is eliminated because output is efficient.
5. Compare the outcomes: perfect price discrimination leads to no consumer surplus, no deadweight loss, and total output equal to the socially efficient quantity, unlike single-price monopoly.