Refer to the following figure: The graph shows the demands and marginal revenue in two markets, 1 and 2, for a price discriminating firm along with total marginal revenue, MR T , and marginal cost. -What price should the firm charge in each market? A) P₁ = $20, P₂ = $32.50 B) P₁ = $35, P₂ = $22.50 C) P₁ = $20, P₂ = $20 D) P₁ = $27.50, P₂ = $35 E) Impossible to say because market demand is not given

Question

Quizplus · Accepted Answer

The firm should charge a higher price in market 2 (P₂) since the demand is higher. Therefore, the price for market 2 should be higher than the price for market 1 (P₁). Option A and C have the same price for both markets, which is not in line with the differing demand levels. Option B has a higher price in market 1 than market 2, which is not optimal given the demand levels. Option E cannot be chosen as it is impossible to determine the best choice without knowing the market demand levels. Therefore, option D is the best choice as it offers a higher price for market 2 than market 1, which is in line with the differing demand levels.

Refer to the Following Figure