When an Oligopolist Individually Chooses Its Level of Production to Maximize

question 1

Multiple Choice

When an oligopolist individually chooses its level of production to maximize its profits, it charges a price that is

• A) more than the price charged by either monopoly or a competitive market.
• B) less than the price charged by either monopoly or a competitive market.
• C) more than the price charged by a monopoly and less than the price charged by a competitive market.
• D) less than the price charged by a monopoly and more than the price charged by a competitive market.

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Definitions:

Perfect Price Discrimination

A pricing strategy where a seller charges the maximum possible price to each customer based on their willingness to pay, capturing all consumer surplus as profit.

Consumer Surplus

The discrepancy between what consumers are prepared and able to spend on a product or service and the actual amount they end up paying.

Producer Surplus

The difference between what producers are willing to sell a good for and the actual price they receive, serving as an indicator of producer welfare.

Direct Price Discrimination

A pricing strategy where a business charges different prices to different customers for the same product or service, based on willingness to pay.