Question

In the case of first-degree price discrimination, which of the following statements is/are CORRECT in the long run?

• A. Total surplus is equal to firm's profit.
• B. Consumer surplus is equal to zero.
• C. Deadweight loss is positive.
• D. Producer surplus is zero.

Hint:

First-degree price discrimination results in no consumer surplus, as the firm captures all of it in the form of producer surplus.

Answer 1

The Correct Option is B

Step 1: Understand first-degree price discrimination.
First-degree price discrimination, also known as personalized pricing or perfect price discrimination, occurs when a firm charges each consumer the maximum price they are willing to pay for a good or service.
Step 2: Analyze each option.
- Option (A) is incorrect because, under first-degree price discrimination, total surplus (which includes consumer surplus and producer surplus) is maximized, and all of it becomes the producer's surplus, not just profit.
- Option (B) is correct because under first-degree price discrimination, the consumer surplus is entirely extracted by the firm and hence is zero.
- Option (C) is incorrect because deadweight loss is zero in the case of first-degree price discrimination since every consumer is charged exactly what they are willing to pay.
- Option (D) is incorrect because producer surplus is maximized under first-degree price discrimination, not zero.
Final Answer: \[ \boxed{\text{Consumer surplus is equal to zero in the case of first-degree price discrimination.}} \]