Asked by Alyssa Squissato on Jun 01, 2024

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(Figure: PPV) Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $40.If the cable company practices perfect price discrimination,deadweight loss will be:

A) $180.
B) $100.
C) $40.
D) $0.

Perfect Price Discrimination

A pricing strategy where a seller charges the maximum price that each consumer is willing to pay, thus capturing the entire consumer surplus.

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or service is not achieved, leading to an under or overallocation of resources.

Pay-per-view

A television service allowing viewers to purchase events to be viewed on a private telecast at home.

  • Investigate the consequences of price discrimination for consumer surplus and deadweight loss.
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ZK
Zybrea KnightJun 01, 2024
Final Answer :
D
Explanation :
With perfect price discrimination, the cable company charges each consumer their maximum willingness to pay, eliminating consumer surplus but capturing all of the surplus for themselves. Therefore, there is no deadweight loss. In this scenario, the total surplus is the same as the producer surplus which is $240 ($80 x 3) - ($40 x 3) = $120. Since there is no deadweight loss, the best choice is D, with a deadweight loss of $0.