A monopolist facing different demand curves in two separate markets maximizes profit by:
A) setting marginal revenue equal to marginal cost for the combined demand curve and charging the maximum price for that quantity on the combined demand curve.
B) completely ignoring the market with lower demand.
C) completely ignoring the market with higher demand.
D) setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market.

Question

Quizplus · Accepted Answer

A monopolist facing different demand curves in two separate markets has to set marginal revenue equal to marginal cost in each market separately. This will give the profit-maximizing quantity and price in each market. The monopolist should then charge the highest price possible that the demand will bear in each market to maximize profits. Therefore, option D is the best choice.

A Monopolist Facing Different Demand Curves in Two Separate Markets