A firm faces the demand curve Q = 20 - 0.8P and marginal cost MC = 2.5Q.
If the firm can perfectly price discriminate, it will sell ____ units to maximize profit.
A) 0
B) 2.3
C) 4.67
D) 6.67

Question

Quizplus · Accepted Answer

To maximize profit through perfect price discrimination, a firm will produce where marginal cost (MC) equals marginal revenue (MR). Given the demand curve Q = 20 - 0.8P, we first need to find the inverse demand curve to express P as a function of Q, which is P = 25 - 1.25Q. The marginal revenue curve for a perfectly price discriminating firm mirrors the demand curve because it can charge each unit at its maximum willingness to pay. Therefore, MR = 25 - 1.25Q. Setting MR equal to MC to find the profit-maximizing quantity, we have 25 - 1.25Q = 2.5Q. Solving for Q gives us Q = 6.67.

A Firm Faces the Demand Curve Q = 20 -