1) Under perfect first degree price discrimination, consumer surplus is ____% of
ID: 1205802 • Letter: 1
Question
1) Under perfect first degree price discrimination, consumer surplus is ____% of total (consumer + producer) surplus.
2)
Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms?
When there are few firms in the market and the demand curve faced by each firm is relatively inelastic.
When there are many firms in the market and the demand curve faced by each firm is relatively inelastic.
When there are few firms in the market and the demand curve faced by each firm is relatively elastic.
When there are many firms in the market and the demand curve faced by each firm is relatively elastic.
A.When there are few firms in the market and the demand curve faced by each firm is relatively inelastic.
B.When there are many firms in the market and the demand curve faced by each firm is relatively inelastic.
C.When there are few firms in the market and the demand curve faced by each firm is relatively elastic.
D.When there are many firms in the market and the demand curve faced by each firm is relatively elastic.
Explanation / Answer
1) First degree price discrimination is a technique where the monopolist charges each consumer his reservation price so that he engulfs the entire consumer surplus, so that teh entire surplus belong to the producer.
Thus, Under perfect first degree price discrimination, consumer surplus is 0% of total (consumer + producer) surplus
2) Firms try to merge and acquire monopoly power when there are few firms in the market. When there are few firms in the market and the demand curve faced by each firm is relatively inelastic, it is easy tp control the market demand.
Hence the correct option is A.
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