The figure given below shows the demand curves of two classes of buyers, for tickets to a football match.Figure 11.4 D 1 : Demand curve of group 1 D 2 : Demand curve of group 2 MR 1 : Marginal revenue of group 1 MR 2 : Marginal revenue of group 2 MC: Marginal cost -Refer to Figure 11.4. What price must be charged from each group to maximize profits? A)Both groups must be charged P₁ . B)Both groups must be charged P₂ . C)Group 1 must be charged P₁ and group 2 must be charged P₂. D)Group 1 must be charged P₂ and group 2 must be charged P₁. E)Both the groups must be charged a price that is equal to the marginal cost.

Question

Quizplus · Accepted Answer

To maximize profits, price must be set at the point where marginal revenue equals marginal cost. In this case, we can see that group 1's marginal revenue intersects with marginal cost at the point where their demand curve intersects with MC. Similarly, group 2's marginal revenue intersects with marginal cost at the point where their demand curve intersects with MC. Therefore, group 1 must be charged P₁ and group 2 must be charged P₂ to maximize profits.

The Figure Given Below Shows the Demand Curves of Two