Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $100 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 $85 and marginal revenue in segment B is $105.How can this firm maximize its profit?

Question

Quizplus · Accepted Answer

Since the marginal revenue in segment B is higher than in segment A, the monopolist should allocate more units to segment B. This means decreasing the output in segment A and increasing the output in segment B. However, the monopolist should keep producing as long as the marginal cost is less than or equal to the price they are charging in each segment. Therefore, the best choice is to decrease the output in segment A and increase the output in segment B.

Consider a Monopolist That Is Able to Distinguish Between Two