Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $18 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15.Is this firm maximizing its profit?

Question

Quizplus · Accepted Answer

The firm is not maximizing its profit because it can increase its profits by price discriminating across the two market segments. Currently, the firm is charging a single price to both segments, but it is able to distinguish between them and charge different prices. By doing so, the firm can capture more of the consumer surplus in each segment and increase its profits. Therefore, option D is the correct answer.

Consider a Monopolist That Is Able to Distinguish Between Two