Which of the following is true for a monopolist that engages in perfect price discrimination?

• A. The monopolist produces less output than would be produced under perfect competition.
• B. Each consumer pays a price equal to the average cost of production.
• C. Consumer surplus is eliminated and all surplus is captured by the monopolist as profit.
• D. Deadweight loss is maximized compared to single-price monopoly.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what perfect price discrimination means. It occurs when a monopolist charges each consumer the maximum price they are willing to pay, capturing the entire consumer surplus.
2. Step 2: Recall that under perfect price discrimination, the monopolist sells to every consumer whose willingness to pay is at least equal to the marginal cost, so output is the same as in perfect competition.
3. Step 3: Recognize that because the monopolist charges each consumer their maximum willingness to pay, consumer surplus is completely eliminated and converted into producer surplus (profit).
4. Step 4: Note that since the monopolist produces the competitive quantity, there is no deadweight loss; the allocation is efficient despite the monopolist capturing all surplus.
5. Step 5: Compare these outcomes to the options given: the monopolist produces the competitive output level, consumer surplus is zero, and deadweight loss is zero, confirming that the correct statement is that consumer surplus is eliminated and all surplus is captured by the monopolist.