Question

Need as much details as possible. Microeconomics.

Suppose that there is only one firm on the market (a monopoly) and that the (inverse) market demand is P(Q). Which statement is NOT correct?

a. If all consumers in the market are identical, the monopoly can achieve the first-degree price discrimination outcome by setting a two-part tariff optimally.

b. If the monopoly is setting a uniform price, then MR=P.

c. If the monopoly is doing first-degree price discrimination, then MR = P(Q).

d. If the monopoly is doing third-degree price discrimination, deadweight loss is positive.

Answer 1

Option (b).

Two-part tariff (charging price equal to MC and fixed fee/profit being equal to consumer surplus) is applicable when all consumers are identical. So option (a) is correct.

A uniform-pricing monopolist equates MR and MC, and since demand curve lies above MR curve, MR < P. Option (b) is incorrect.

With first degree price discrimination, P = MR = MC and profit equals consumer surplus. So option (c) is correct.

With third degree price discrimination, MR1 = MR2 = MR3 = .......= MRn = MC, and a deadweight loss arises. So option (d) is correct.