When a monopolist engages in perfect price discrimination,Group of answer choicesthe marginal revenue curve lies below the demand curve.the demand curve and the marginal revenue curve are identical.marginal cost becomes zero.the marginal revenue curve becomes horizontal.
Question
When a monopolist engages in perfect price discrimination,Group of answer choicesthe marginal revenue curve lies below the demand curve.the demand curve and the marginal revenue curve are identical.marginal cost becomes zero.the marginal revenue curve becomes horizontal.
Solution
When a monopolist engages in perfect price discrimination, the demand curve and the marginal revenue curve are identical.
Here's why:
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In perfect price discrimination, the monopolist charges each consumer the maximum price they are willing to pay for each unit of a good.
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This means that the monopolist captures all consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay.
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As a result, the price that each consumer pays (which is their individual demand) is exactly equal to the revenue that the monopolist receives for each unit sold (which is marginal revenue).
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Therefore, in perfect price discrimination, the demand curve and the marginal revenue curve are identical.
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