You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination to maximize profits, the marginal revenue:
A) in the foreign market will equal the marginal cost.
B) in the domestic market will equal the marginal cost.
C) in the domestic market will equal the marginal revenue in the domestic market.
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

When a firm practices third-degree price discrimination, it charges different prices for the same product in different markets based on the willingness to pay of consumers in each market. To maximize profits, the firm sets the output where marginal revenue (MR) equals marginal cost (MC) in each market. Therefore, both in the foreign and domestic markets, the marginal revenue of the firm will equal the respective market's marginal cost. Hence, the correct answer is D - all of the above.

You Produce Stereo Components for Sale in Two Markets, Foreign