What is the correct answer?


In second degree price discrimination, monopolist takes away :

A. All of the consumer surplus

B. All of the producer surplus

C. Some part of the consumer surplus

D. None of them

Correct Answer :

C. Some part of the consumer surplus

Second Degree Price Discrimination The second type of price discrimination involves the establishment of a pricing structure for a particular good based on the number of units sold. Quantity discounts are a common example. In this case the seller charges a higher per-unit price for fewer units sold and a lower per-unit price for larger quantities purchased. In this case the seller is attempting to extract some of the consumer's surplus value as profits with residual surplus remaining with the consumer over and above the actual price paid. Like the case of first degree price discrimination, the firm will produce a level of output where the price charged just covers the marginal costs of production. In the diagram below, we find an example of a firm charging three different prices for the same product. The price P0 is charged per unit if the buyer chooses to buy Q0 units of the good. A lower price P1 is charged for a greater quantity Q1 and the price P2 is charged for the quantity Q*2 (the level of output such that P2 = MC -- the marginal costs of production): Figure 3, Second Degree Price Discrimination Common examples of second degree price discrimination include quantity discounts for energy use; the variations in price for different sizes of boxed cereal, packaged paper products; and sodas and French fries at fast food outlets.

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