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.How can this firm maximize its profit?

Question

Quizplus · Accepted Answer

The monopolist can maximize its profit by producing where marginal revenue equals marginal cost. Since the marginal revenue for segment A is greater than the marginal revenue for segment B, the firm should produce more units for segment A and fewer units for segment B. By doing so, the firm can increase its profit by selling more units at a higher price in segment A while still selling some units in segment B. Therefore, the correct answer is to increase the output in segment A and decrease the output in segment B which is choice A.

Consider a Monopolist That Is Able to Distinguish Between Two