Scenario: Tobac Co. is a monopolist in cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm has a constant marginal cost of $2.00 per pack and the fixed cost is $20 million. Through market research, the firm has found that there are two types of customer, Type 1 and Type 2. The demand curves of the two types of customers, and the total market demand curve, along with respective marginal revenue curves, are shown in the following figure.

-Refer to the scenario above.If Tobac Co.could not carry out price discrimination,the firm's maximum profit would be ________.

Question

Scenario: Tobac Co. is a monopolist in cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm has a constant marginal cost of $2.00 per pack and the fixed cost is $20 million. Through market research, the firm has found that there are two types of customer, Type 1 and Type 2. The demand curves of the two types of customers, and the total market demand curve, along with respective marginal revenue curves, are shown in the following figure.

-Refer to the scenario above.If Tobac Co.could not carry out price discrimination,the firm's maximum profit would be ________.

Quizplus · Accepted Answer

Without price discrimination, Tobac Co. would have to charge a single price to all customers, which typically results in lower profits compared to when a firm can charge different prices to different segments. The maximum profit without price discrimination is $246.4 million.