Price Discriminating Monopoly Producer Surplus

In the case of a perfectly price discriminating monopoly there is no a. Price discrimination transfers some of this surplus from the consumer to the producer marketer.

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There is not deadweight loss even though there is not consumer surplus a which was extracted by the monopoly and at the end both quantity and price are equal to those that would result from perfect competition.

Price discriminating monopoly producer surplus. D there is a redistribution of consumer surplus to the monopoly. No one captures any of that lost value. Producer surplus total revenue total variable cost economic profit producer surplus total fixed cost price discrimination.

It is a way of increasing monopoly profit. B all consumer surplus goes to the monopoly. In a first degree price discrimination strategy all consumer surplus is turned into producer surplus.

The firm is able to turn consumer surplus into producer surplus. C deadweight loss is created. Price discrimination also might be used as a predatory pricing tactic to harm competition at the supplier s level and increase a firm s market power in the long run i e.

As seen in the adjacent figure the producer surplus equals total surplus a b. Sometimes known as optimal pricing with perfect price discrimination the firm separates the market into each individual consumer and charges them the price they are willing and able to pay if successful the firm can extract the entire consumer surplus that lies underneath the demand curve and turn it into extra revenue or producer surplus. A discriminating monopoly is extracting consumer surplus and turning it into supernormal profit producer surplus.

Transfer of consumer surplus to the producer. Increasing profit and producer surplus by price discriminating a monopoly captures consumer surplus and converts it into producer surplus. More producer surplus means more economic profit.

For teachers for schools for working scholars. It s likely that at this point you are experiencing some cognitive dissonance. Economic profit total revenue total cost producer surplus is total revenue minus the area under the marginal cost curve which is total variable cost.

It also ties into survivability as smaller firms are able to better survive if they are able to offer different prices in times of greater and lower demand. When a monopolist plays a pure price discrimination strategy it will lead to shifting the consumer surplus in the account of producer surplus with the same amount because total surplus in the. In a perfectly competitive market manufacturers make normal profit but not monopoly profit so they cannot engage in price discrimination.

It can be illegal in some cases and might be investigated by the competition authorities such as the competition and markets authority cma. D in the case of a perfectly price discriminating mo nopoly there is no a transfer of consumer surplus to the producer. If the monopoly produces q m and charges p m the outcome isn t efficient.

The lost social surplus due to monopoly is called a deadweight loss since it is lost to society.

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