Explain how consumer surplus, economic profit, and output change when a monopoly perfectly price discriminates

Question

What will be an ideal response?

Answer 1

Perfect price discrimination occurs when a monopoly charges each consumer the maximum price he or she is willing to pay. The closer the price paid is to the value placed on the good, the smaller is the consumer surplus. This transfers the entire consumer surplus to producer surplus. Consumer surplus is eliminated. Producer surplus increases because it gains an amount equal to the lost consumer surplus. Producer surplus also increases because the quantity produced increases to the output at which price equals marginal cost. The monopoly increases its economic profit compared to charging a single-price to all customers. This outcome achieves efficiency by eliminating the deadweight loss.