Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $100 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 $85 and marginal revenue in segment B is $105.Is this firm maximizing its profit?

Question

Quizplus · Accepted Answer

The firm is able to distinguish between two market segments and has different marginal revenue for each segment, indicating that it has some market power. By using price discrimination, the firm can increase its profits by charging a higher price in segment B where the demand is relatively inelastic and a lower price in segment A where the demand is relatively elastic. Therefore, the firm is not currently maximizing its profit and can increase its profits by price discriminating across the two market segments.

Consider a Monopolist That Is Able to Distinguish Between Two