The diagram below shows total revenue for a single- price monopolist.
FIGURE 10- 3
-Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $18 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15.Is this firm maximizing its profit?

Question

The diagram below shows total revenue for a single- price monopolist.
  FIGURE 10- 3
-Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $18 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15.Is this firm maximizing its profit?

Quizplus · Accepted Answer

The firm can increase its profits by price discriminating across the two market segments. This is because the firm can charge a higher price to segment A, where marginal revenue is greater, and a lower price to segment B, where marginal revenue is lower. By doing so, the firm can capture more consumer surplus and increase its overall profit.

The Diagram Below Shows Total Revenue for a Single- Price