Suppose a given market is served by a monopoly with constantmarginal cost, c. We know that 1st degree price discriminationincreases total surplus compared to the outcome where the monopolycharges a single price, pm. One of the criticisms of this result isthat price discrimination can be costly to the monopoly, e.g.,because it must gather information on willingness-to-pay. Supposethe marginal cost with price discrimination rises to c' > c.Explain with words and a diagram whether total surplus is stillhigher with 1st degree price discrimination than a single price.What areas on your diagram must be compared?
