### Understanding Perfect Price Discrimination**Concept Overview:**Barefeet is a company that is capable of practicing perfect price discrimination. This means they know each consumer's willingness to pay for each pair of Ooh boots and can charge each consumer precisely that amount.**Graph Explanation:**The graph provided illustrates the demand curve for Ooh boots, with quantity on the x-axis (ranging from 0 to 200 pairs of boots) and price on the y-axis (ranging from $0 to $100 per pair). There are several elements to note within the graph:- **Black Point (+ Symbol):** Represents the monopoly outcome, indicating the profit-maximizing quantity sold and the lowest price charged by the firm.- **Green Triangle:** Represents consumer surplus. In a perfectly competitive market, this would be the area under the demand curve and above the price line.- **Purple Diamond:** Marks the area of profit. - **Red Line (MC = ATC):** Represents the marginal cost (MC) and average total cost (ATC), which are equivalent in a perfectly competitive market. It is a horizontal line suggesting constant costs.- **Colored Areas:** - **Green Area Under the Curve:** Shows consumer surplus. - **Purple Area Above MC = ATC Line:** Illustrates the profit.- **Deadweight Loss:** Shown in grey if the company cannot perfectly price discriminate (not highlighted in the description provided). No deadweight loss occurs with perfect price discrimination.**Welfare Effects Analysis:**When comparing single-price monopoly to perfect price discrimination:1. **Single-Price Monopoly:** - **Deadweight Loss:** Check the box if the statement applies. There is usually a loss when the firm does not produce at the socially efficient level. - **Quantity Produced:** Typically less than the efficient quantity due to restricted output. - **Surplus Maximization:** Does not occur; consumer surplus is higher with perfect price discrimination.2. **Perfect Price Discrimination:** - **Deadweight Loss:** Eliminated because each unit is sold at the consumer's willingness to pay. - **Quantity Produced:** Matches the efficient quantity where MC = Demand Curve. - **Surplus Maximization:** Achieved by extracting maximum consumer surplus as profit. **Conclusion:**Understanding the dynamics between single-price monopoly and perfect price discrimination helps reveal the impacts on consumer surplus, producer profit, and overall economic welfare. **Monopoly Pricing and Profit Maximization: An Example with Barefeet**Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $20 per pair of Ooh boots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve.**Price Discrimination and Consumer Pricing**First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of the consumer's willingness and ability to pay.On the graph:- **Monopoly Outcome**: Indicate the profit-maximizing price and quantity with a black point (plus symbol).- **Profit**: Shade the profit area with purple points (diamond symbol).- **Consumer Surplus**: Shade the consumer surplus with green points (triangle symbol).- **Deadweight Loss**: Shade the deadweight loss with black points (plus symbol).> **Note**: If consumer surplus, profit, or deadweight loss equals zero, leave that element in its original position on the palette.Now, suppose that Barefeet can practice perfect price discrimination—that is, it knows each consumer's willingness to pay for each pair of Ooh boots and is able to charge each consumer that amount.On the graph:- **Profit-Maximizing Quantity and Pricing**: Indicate with a black point (plus symbol) the profit-maximizing quantity and lowest price at which the firm sells its boots.- **Profit**: Shade the profit area with purple points (diamond symbol).- **Consumer Surplus**: Shade the consumer surplus with green points (triangle symbol).- **Deadweight Loss**: Shade the deadweight loss with black points (plus symbol).> **Note**: If consumer surplus, profit, or deadweight loss equals zero, leave that element in its original position on the palette.**Graph Explanation**The graph displays:- **Price (P) on the vertical axis**: Ranging from $0 to $100 per pair of Ooh boots.- **Quantity (Q) on the horizontal axis**: Ranging from 0 to 200

(1) A non-discriminating single price monopolist will charge a uniform price from all consumers, and…

Answered: nd is able to charge each consumer that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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### Understanding Perfect Price Discrimination

**Concept Overview:**

Barefeet is a company that is capable of practicing perfect price discrimination. This means they know each consumer's willingness to pay for each pair of Ooh boots and can charge each consumer precisely that amount.

**Graph Explanation:**

The graph provided illustrates the demand curve for Ooh boots, with quantity on the x-axis (ranging from 0 to 200 pairs of boots) and price on the y-axis (ranging from $0 to $100 per pair). There are several elements to note within the graph:

- **Black Point (+ Symbol):** Represents the monopoly outcome, indicating the profit-maximizing quantity sold and the lowest price charged by the firm.

- **Green Triangle:** Represents consumer surplus. In a perfectly competitive market, this would be the area under the demand curve and above the price line.

- **Purple Diamond:** Marks the area of profit.

- **Red Line (MC = ATC):** Represents the marginal cost (MC) and average total cost (ATC), which are equivalent in a perfectly competitive market. It is a horizontal line suggesting constant costs.

- **Colored Areas:**
- **Green Area Under the Curve:** Shows consumer surplus.
- **Purple Area Above MC = ATC Line:** Illustrates the profit.

- **Deadweight Loss:** Shown in grey if the company cannot perfectly price discriminate (not highlighted in the description provided). No deadweight loss occurs with perfect price discrimination.

**Welfare Effects Analysis:**

When comparing single-price monopoly to perfect price discrimination:

1. **Single-Price Monopoly:**
- **Deadweight Loss:** Check the box if the statement applies. There is usually a loss when the firm does not produce at the socially efficient level.
- **Quantity Produced:** Typically less than the efficient quantity due to restricted output.
- **Surplus Maximization:** Does not occur; consumer surplus is higher with perfect price discrimination.

2. **Perfect Price Discrimination:**
- **Deadweight Loss:** Eliminated because each unit is sold at the consumer's willingness to pay.
- **Quantity Produced:** Matches the efficient quantity where MC = Demand Curve.
- **Surplus Maximization:** Achieved by extracting maximum consumer surplus as profit.

**Conclusion:**

Understanding the dynamics between single-price monopoly and perfect price discrimination helps reveal the impacts on consumer surplus, producer profit, and overall economic welfare.

Transcribed Image Text:**Monopoly Pricing and Profit Maximization: An Example with Barefeet** Suppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $20 per pair of Ooh boots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that its marginal cost curve is also equal to the average total cost (ATC) curve. **Price Discrimination and Consumer Pricing** First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of the consumer's willingness and ability to pay. On the graph: - **Monopoly Outcome**: Indicate the profit-maximizing price and quantity with a black point (plus symbol). - **Profit**: Shade the profit area with purple points (diamond symbol). - **Consumer Surplus**: Shade the consumer surplus with green points (triangle symbol). - **Deadweight Loss**: Shade the deadweight loss with black points (plus symbol). > **Note**: If consumer surplus, profit, or deadweight loss equals zero, leave that element in its original position on the palette. Now, suppose that Barefeet can practice perfect price discrimination—that is, it knows each consumer's willingness to pay for each pair of Ooh boots and is able to charge each consumer that amount. On the graph: - **Profit-Maximizing Quantity and Pricing**: Indicate with a black point (plus symbol) the profit-maximizing quantity and lowest price at which the firm sells its boots. - **Profit**: Shade the profit area with purple points (diamond symbol). - **Consumer Surplus**: Shade the consumer surplus with green points (triangle symbol). - **Deadweight Loss**: Shade the deadweight loss with black points (plus symbol). > **Note**: If consumer surplus, profit, or deadweight loss equals zero, leave that element in its original position on the palette. **Graph Explanation** The graph displays: - **Price (P) on the vertical axis**: Ranging from $0 to $100 per pair of Ooh boots. - **Quantity (Q) on the horizontal axis**: Ranging from 0 to 200

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