Why do monopolists engage in price discrimination?

• A. To comply with government regulations on pricing
• B. To reduce production costs and achieve economies of scale
• C. To increase their profits by capturing consumer surplus
• D. To encourage competition in the market

Answer: (C)

Verified step by step guidance

1. Understand the concept of price discrimination: it occurs when a monopolist charges different prices to different consumers for the same product, based on their willingness to pay.
2. Recognize that monopolists have market power, allowing them to set prices above marginal cost and influence consumer behavior.
3. Recall that consumer surplus is the difference between what consumers are willing to pay and what they actually pay; price discrimination aims to capture more of this surplus.
4. Analyze why price discrimination increases profits: by charging higher prices to consumers with a higher willingness to pay and lower prices to more price-sensitive consumers, the monopolist can sell more units and extract more revenue.
5. Conclude that the primary motivation for monopolists to engage in price discrimination is to increase their profits by capturing consumer surplus, rather than complying with regulations, reducing costs, or encouraging competition.