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. How can this firm maximize its profit?

Question

Quizplus · Accepted Answer

To maximize profit, the firm should equalize marginal revenue across segments to the marginal cost. Since MR in segment A ($85) is less than MC ($100), the firm should decrease output in segment A. Since MR in segment B ($105) is greater than MC ($100), the firm should increase output in segment B.

Consider a Monopolist That Is Able to Distinguish Between Two