Question

a) Explain why a perfectly discriminating monopolist is efficient.

b) Why will a monopolist that is able to perfectly price discriminate sell more than a non-discriminating monopolist?

Answer 1

A) A perfectly price discriminating monopoly charges a different price for every unit consumed.

The price set equals the consumer willingness to pay for each good.

This ways a perfectly price discriminating monopoly is able to maximize producer surplus, reduce consumer surplus to 0 and maximize total surplus with 0 deadweight loss.

This makes the perfectly price discriminating monopoly efficient

B) A perfectly price discriminating monopoly is able to sell more than a non discriminating monopoly because it is able to capture on the consumer surplus and make price equal to consumer willingness to pay, which helps the seller maximize sales and eliminating deadweight loss.