Figure: Canada & Europe
A monopolist sells its output in two markets: Canada and Europe, as shown in these figures. To maximize profits, the monopolist should:
A) set a price of $10 in both markets.
B) set a price of $10 in Canada and $7.50 in Europe.
C) set a price equal to $5, or marginal cost, in Canada and Europe.
D) sell 20 units in Canada and 10 units in Europe.

Question

Figure: Canada & Europe  
A monopolist sells its output in two markets: Canada and Europe, as shown in these figures. To maximize profits, the monopolist should:
A) set a price of $10 in both markets. 
B) set a price of $10 in Canada and $7.50 in Europe. 
C) set a price equal to $5, or marginal cost, in Canada and Europe. 
D) sell 20 units in Canada and 10 units in Europe.

Quizplus · Accepted Answer

The monopolist should set different prices in Canada and Europe because the demand curves are different in each market. To maximize profits, the monopolist should charge a higher price in Canada, where the demand curve is more inelastic, and a lower price in Europe, where the demand curve is more elastic. Based on the figures given, the monopolist should set a price of $10 in Canada and $7.50 in Europe in order to maximize profits.