Suppose the market for some product can be divided into two segments, and a monopolist can set a different price in each segment. The profit- maximizing price discrimination across these two market segments will lead to

Question

Quizplus · Accepted Answer

Price discrimination allows a monopolist to charge different prices to different groups of consumers based on their willingness to pay. By segregating the market into two segments, the monopolist can charge a higher price to one group with a relatively higher willingness to pay and a lower price to the other group with a relatively lower willingness to pay. This strategy increases the monopolist's profit by capturing more consumer surplus.

Since price discrimination enables the monopolist to charge different prices in each market segment, it does not lead to a reduction in output. Instead, it allows the monopolist to sell more units in the respective market segments by catering to consumers' varying willingness to pay. However, the higher price charged in one segment may deter some consumers from buying the product, leading to a lower quantity demanded in that segment.

Moreover, since price discrimination captures more consumer surplus, it increases the average revenue per unit sold. Therefore, the correct answer is C, where the monopolist will produce the same output in each market segment as the single best price but will achieve a higher average revenue per unit sold.

Suppose the Market for Some Product Can Be Divided into Two