When a pure monopoly practices first-degree price discrimination, which of the following occurs?

• A. The monopoly produces less output than under uniform pricing.
• B. Consumer surplus is maximized.
• C. The monopoly charges each consumer the maximum price they are willing to pay for each unit.
• D. All consumers pay the same price for each unit of the good.

Answer: (C)

Verified step by step guidance

1. Understand the concept of first-degree price discrimination: it occurs when a monopoly charges each consumer the maximum price they are willing to pay for each unit of the good, capturing all consumer surplus.
2. Recall that under first-degree price discrimination, the monopolist extracts the entire area under the demand curve as revenue, leaving no consumer surplus.
3. Compare output levels: since the monopolist can charge each consumer their willingness to pay, they will produce the same quantity as in perfect competition, which is more than under uniform pricing.
4. Analyze the impact on consumer surplus: because the monopolist captures all surplus, consumer surplus is zero, not maximized.
5. Recognize that under first-degree price discrimination, prices vary by consumer and unit, so not all consumers pay the same price for each unit.