Suppose a profit-maximizing monopoly is able to employ group price discrimination.The marginal cost of providing the good is constant and the same in both markets.The marginal revenue the firm earns on the last unit sold in the market with the higher price will be
A)greater than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
B)less than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
C)equal to the marginal revenue the firm earns on the last unit sold in the market with the higher price.
D)greater than the marginal cost of the last unit.

Question

Quizplus · Accepted Answer

Under group price discrimination, the monopolist charges different prices to different groups of consumers based on their willingness to pay. Due to this, the monopolist can sell more units of the good in the market with the lower price and fewer units in the market with the higher price. However, marginal cost is the same in both markets.

To maximize profits, the monopolist will produce the output level at which marginal revenue equals marginal cost in each market. Since the marginal cost is constant and the same in both markets, the marginal revenue the firm earns on the last unit sold in both markets will also be the same. Therefore, the marginal revenue the firm earns on the last unit sold in the market with the higher price will be equal to the marginal revenue the firm earns on the last unit sold in the market with the lower price.

Suppose a Profit-Maximizing Monopoly Is Able to Employ Group Price