Which of the following is true about a perfect price discriminating monopolist?

• A. The monopolist charges each consumer the maximum price they are willing to pay.
• B. Consumer surplus is maximized under perfect price discrimination.
• C. The monopolist cannot earn any economic profit.
• D. The monopolist produces less output than a single-price monopolist.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of perfect price discrimination. It occurs when a monopolist charges each consumer the maximum price they are willing to pay, capturing all consumer surplus as profit.
2. Step 2: Analyze the effect on consumer surplus. Since the monopolist charges each consumer their maximum willingness to pay, consumer surplus is reduced to zero, not maximized.
3. Step 3: Consider the monopolist's economic profit. Because the monopolist captures all consumer surplus, it can earn positive economic profits, contrary to the statement that it cannot earn any.
4. Step 4: Compare output levels. A perfect price discriminating monopolist produces the socially efficient quantity where price equals marginal cost, which is greater than the output of a single-price monopolist.
5. Step 5: Conclude which statement is true. The correct statement is that the monopolist charges each consumer the maximum price they are willing to pay.