A firms sells an identical product to two groups of consumers, A and B. The firm has decided that ordinary price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?
A)MRA = MRB = MC.
B)(MRA - MRB)= (1 - MC).
C)PA = PB = MC.
D)MRA = MRB.

Question

Quizplus · Accepted Answer

To maximize profits through price discrimination, a firm should set marginal revenue equal for all groups (MRA = MRB) and equal to marginal cost (MC). This ensures that the firm is producing at the most efficient level for each group and maximizing the total profit.

A Firms Sells an Identical Product to Two Groups of Consumers