Which of the following statements is true? There is a deadweight loss associated

Question

Which of the following statements is true?

There is a deadweight loss associated with perfect price discrimination.

In perfect price discrimination, the firm is able to convert the entire area of consumer surplus that existed under perfect competition into producer surplus.

For a monopoly there is an increase in total welfare for society compared to perfect competition.

There is no producer surplus associated with perfect price discrimination.

There is a deadweight loss associated with perfect price discrimination.

In perfect price discrimination, the firm is able to convert the entire area of consumer surplus that existed under perfect competition into producer surplus.

For a monopoly there is an increase in total welfare for society compared to perfect competition.

There is no producer surplus associated with perfect price discrimination.

Explanation / Answer

Correct option: (b) In perfect price discrimination, the firm is able to convert the entire area of consumer surplus that existed under perfect competition into producer surplus.

Reason: Under perfect competition, producers charge consumers their maximum willingness to pay. This makes P = Willingness to pay of consumer.

This makes consumer surplus 0.

This consumer surplus area gets shifted to producer surplus as it can increases price and sale for each good and consumer, thereby benefitting the seller.

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