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How is consumer surplus defined and what does it attempt to measure? Suppose that a firm is able to perfectly price discriminate in a market. If a firm does this, what happens to consumer surplus in the market? Is price discrimination fair? Why or why not?

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Vaishnavi Kanukurti
Vaishnavi KanukurtiLv10
28 Sep 2019
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Related questions

A monopolist firm serves 6 consumers. Each of the consumers only buy one unit of the good. Two consumers buy one unit if the price is lower or equal than $100 and the other four consumers buy one unit if the price is lower or equal than $10. The firm's cost function is C(Q) = 5Q.

(a) Suppose the firm is restricted to set a single price for all consumers (i.e., no price discrimination). What price does the firm set? How much profit does the firm collect?

(b) How much consumer surplus is generated at the prices identified in (a)?

(c) Suppose the firm is able to set a personalized price for each consumer (i.e., first-degree price discrimination). What prices does the firm set? How much profit does the firm collect?

(d) How much consumer surplus is generated at the prices identified in (c)?

A) Suppose the lawn-mowing industry approximates a perfectly competitive industry. Suppose also that a single firm buys all the assets of the lawn-mowing firms and establishes a monopoly. Contrast these two market structures with respect to price, output, and allocation of resources. Would you expect the monopoly to survive? Explain.

B) The Best Computer Company just developed a new computer chip, on which it immediately acquires a patent, and becomes monopoly producer/seller. Show and explain what happens to consumer surplus, producer surplus and the deadweight loss (DWL) if the firm goes from a single price monopoly to perfect price discrimination.

(kindly provide drawn graph as reference)

The XYZ Corporation provides accounting services to a wide variety of customers. XYZ's demand and marginal revenue functions are P = 10,000 - 10Q and MR = 10,000 - 20Q. XYZ's marginal cost of providing its services is MC = 5Q. Answer the following questions:

A) If XYZ charges a uniform price for its services, what price will it charge per unit of service and how many units of services will it produce to maximize profit?

B) Calculate the consumer surplus and producer surplus if XYZ charges a uniform price for its services.

C) If XYZ could perfectly price discriminate, what is the lowest price it would charge for its service and how many units of services would it produce to maximize profit?

D) Calculate the consumer surplus and producer surplus if XYZ can perfectly price discriminate.

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