Figure: Canada & Europe
A monopolist sells its output in two markets: Canada and Europe, as shown in these figures. To maximize profits, the monopolist should:

Question

Figure: Canada & Europe  
A monopolist sells its output in two markets: Canada and Europe, as shown in these figures. To maximize profits, the monopolist should:

Quizplus · Accepted Answer

To maximize profits, the monopolist should set prices such that the marginal revenue equals marginal cost in each market. From the figures, we can see that the marginal revenue in Canada is $10 and the marginal revenue in Europe is $7.50. We do not know the monopolist's marginal cost, but we can assume that it is constant across both markets. Therefore, the monopolist should set a price of $10 in Canada and $7.50 in Europe, as this will maximize profits. Selling 20 units in Canada and 10 units in Europe may or may not be the optimal quantity, as we do not know the monopolist's demand curves in each market. Therefore, choice B is the best option.