7. Price discrimination and welfareSuppose 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 $40 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. 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 following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) (GRAPH - LOOK AT THE PICTURE) 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 following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) (GRAPH - LOOK AT THE PICTURE) Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate. Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for either single-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply. StatementSingle-price MonopolyPerfect Price DiscriminationBarefeet produces a quantity more than the efficient quantity of Ooh boots. Total surplus is not maximized. There is no deadweight loss associated with the profit-maximizing output. 7. Price discrimination and welfareSuppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph showsthe market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $40 per pair of Oohboots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that itsmarginal cost curve is also equal to the average total cost (ATC) curve.First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of theconsumer's willingness and ability to pay.On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamondsymbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade thedeadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero,indicate this by leaving that element in its original position on the palette.)10090Monopoly Outcome807060Consumer Surplus50MC = ATC40Profit3020Deadweight Loss10MRDemand4080120180200240280320380400QUANTITY (Pairs of Ooh boots)Now, suppose that Barefeet can practice perfect price discrimination-that is, it knows each consumer's willingness to pay for each pair of Ooh bootsand is able to charge each consumer that amount.PRICE (Dollars per pair of Ooh boots) On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells itsboots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and theblack points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus,profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.)(?10090Monopoly Outcome807060Profit50MC = ATC40Consumer Surplus3020Deadweight Loss10Demand4080120180200240280320380400QUANTITY (Pairs of Ooh boots)Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate.Complete the following table by indicating under which market conditions each of the statements is true. (ote: If the statement isn't true for eithersingle-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply.Single-price MonopolyPerfect Price DiscriminationStatementBarefeet produces a quantity more than the efficient quantity of Ooh boots.Total surplus is not maximized.There is no deadweight loss associated with the profit-maximizing output.PRICE (Dollars perpair of Ooh boots)

Question

7. Price discrimination and welfareSuppose 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 $40 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. 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 following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) (GRAPH - LOOK AT THE PICTURE) 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 following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells its boots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.) (GRAPH - LOOK AT THE PICTURE) Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate. Complete the following table by indicating under which market conditions each of the statements is true. (Note: If the statement isn't true for either single-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply. StatementSingle-price MonopolyPerfect Price DiscriminationBarefeet produces a quantity more than the efficient quantity of Ooh boots.   Total surplus is not maximized.   There is no deadweight loss associated with the profit-maximizing output. 7. Price discrimination and welfareSuppose Barefeet is a monopolist that produces and sells Ooh boots, an amazingly trendy brand with no close substitutes. The following graph showsthe market demand and marginal revenue (MR) curves Barefeet faces, as well as its marginal cost (MC), which is constant at $40 per pair of Oohboots. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Barefeet's marginal cost is constant, means that itsmarginal cost curve is also equal to the average total cost (ATC) curve.First, suppose that Barefeet cannot price discriminate. That is, it must charge each consumer the same price for Ooh boots regardless of theconsumer's willingness and ability to pay.On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Next, use the purple points (diamondsymbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and the black points (plus symbol) to shade thedeadweight loss in this market without price discrimination. (Note: If you decide that consumer surplus, profit, or deadweight loss equals zero,indicate this by leaving that element in its original position on the palette.)10090Monopoly Outcome807060Consumer Surplus50MC = ATC40Profit3020Deadweight Loss10MRDemand4080120180200240280320380400QUANTITY (Pairs of Ooh boots)Now, suppose that Barefeet can practice perfect price discrimination-that is, it knows each consumer's willingness to pay for each pair of Ooh bootsand is able to charge each consumer that amount.PRICE (Dollars per pair of Ooh boots) On the following graph, use the black point (plus symbol) to indicate the profit-maximizing quantity sold and the lowest price at which the firm sells itsboots. Next, use the purple points (diamond symbol) to shade the profit, the green points (triangle symbol) to shade the consumer surplus, and theblack points (plus symbol) to shade the deadweight loss in this market with perfect price discrimination. (Note: If you decide that consumer surplus,profit, or deadweight loss equals zero, indicate this by leaving that element in its original position on the palette.)(?10090Monopoly Outcome807060Profit50MC = ATC40Consumer Surplus3020Deadweight Loss10Demand4080120180200240280320380400QUANTITY (Pairs of Ooh boots)Consider the welfare effects when the industry operates under a monopoly and cannot price discriminate versus when it can price discriminate.Complete the following table by indicating under which market conditions each of the statements is true. (ote: If the statement isn't true for eithersingle-price monopolies or perfect price discrimination, leave the entire row unchecked.) Check all that apply.Single-price MonopolyPerfect Price DiscriminationStatementBarefeet produces a quantity more than the efficient quantity of Ooh boots.Total surplus is not maximized.There is no deadweight loss associated with the profit-maximizing output.PRICE (Dollars perpair of Ooh boots)

Accepted Answer

Monopoly market refers to the market structure that can be identified by one seller, who sells a…

Statement	Single-price Monopoly	Perfect Price Discrimination
Barefeet produces a quantity more than the efficient quantity of Ooh boots.
Total surplus is not maximized.
There is no deadweight loss associated with the profit-maximizing output.