By charging consumers the highest price they are willing and able to pay, the pure monopoly:

• A. faces a perfectly elastic demand curve
• B. engages in perfect price discrimination and captures all consumer surplus as profit
• C. produces at the socially optimal level of output
• D. maximizes total consumer surplus in the market

Answer: (B)

Verified step by step guidance

1. Understand the concept of price discrimination: In microeconomics, perfect price discrimination (also called first-degree price discrimination) occurs when a monopolist charges each consumer the maximum price they are willing and able to pay, capturing all consumer surplus as profit.
2. Recall the shape of the demand curve under perfect price discrimination: Since the monopolist charges each consumer their individual willingness to pay, the demand curve effectively becomes perfectly elastic at each quantity sold, as the firm can sell additional units at different prices tailored to each consumer.
3. Analyze the implications for consumer surplus and producer surplus: Under perfect price discrimination, the monopolist captures all consumer surplus, converting it into producer surplus (profit), leaving no consumer surplus in the market.
4. Consider the output level: Unlike a single-price monopoly, a perfectly price-discriminating monopolist produces the socially optimal quantity where price equals marginal cost, because it can sell to every consumer willing to pay at least the marginal cost.
5. Summarize the key outcomes: The monopolist engages in perfect price discrimination, captures all consumer surplus as profit, produces at the socially optimal output level, but does not maximize total consumer surplus (since consumer surplus is zero).