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. How can this firm maximize its profit?

Question

Quizplus · Accepted Answer

To maximize profit, the firm should equalize marginal revenue (MR) across segments to the marginal cost (MC). Since MR in segment A ($25) is greater than MC ($18), the firm should increase output in segment A. Conversely, since MR in segment B ($15) is less than MC, the firm should decrease output in segment B.

Consider a Monopolist That Is Able to Distinguish Between Two