When a firm is practicing price discrimination in two markets, the profit maximizing condition is met at: A) MR_F = MC_F + MC_T B) MR_F = MC_F - MC_T C) MR_A = MR_B = SMC. D) MR_A + MR_B = SMC. E) MR_A - MR_B = SMC.

Question

Quizplus · Accepted Answer

The profit maximizing condition in price discrimination requires that the marginal revenue from each market (MR_A and MR_B) equals the marginal cost in each market (SMC). This ensures that the firm is producing the optimal quantity in each market, and charging the highest possible price that each market will bear, while still earning a profit. Option A and B are incorrect as they do not include the marginal revenue in both markets or they subtract the marginal cost in one market. Option D and E are not correct either because they focus on the sum or difference between the marginal revenue in both markets, which is not necessary to maximize profit in a price discrimination scenario.

When a Firm Is Practicing Price Discrimination in Two Markets