Asked by Tyteana Ratliff on Jun 01, 2024
Verified
(Table: Prices and Demand) Use Table: Prices and Demand.Professor Dumbledore has a monopoly on magic hats.The marginal cost of producing a hat is $18.Suppose Dumbledore can perfectly price-discriminate.How many hats will he produce?
A) 3
B) 4
C) 5
D) 6
Perfect Price-Discriminate
A theoretical pricing strategy where a seller charges each customer the maximum price they are willing to pay, leading to maximum profit without excess supply or demand.
Marginal Cost
The increase in expenses associated with the production of an extra good or service unit.
- Detect scenarios of perfect and imperfect price discrimination in multiple contexts.
- Absorb the principles behind price discrimination's effectiveness in driving up profits within the framework of monopoly markets.
Verified Answer
RP
Randy ParedesJun 06, 2024
Final Answer :
C
Explanation :
With perfect price discrimination, a monopolist will produce until marginal cost equals marginal revenue. In this scenario, since the marginal cost is $18, Dumbledore will produce hats up to the point where the price of the last hat is equal to $18. Without the table provided, we assume that at 5 hats, the price equals the marginal cost of $18, hence 5 hats will be produced.
Learning Objectives
- Detect scenarios of perfect and imperfect price discrimination in multiple contexts.
- Absorb the principles behind price discrimination's effectiveness in driving up profits within the framework of monopoly markets.