When a firm practices price discrimination, for each separate set of consumers it will determine the rate of output at which
A) MR MC.
B) MR = P.
C) MR = AVC.
D) MR = MC.

Question

When a firm practices price discrimination, for each separate set of consumers it will determine the rate of output at which
A) MR > MC.
B) MR = P.
C) MR = AVC.
D) MR = MC.

Quizplus · Accepted Answer

In order to maximize profits when practicing price discrimination, the firm should produce where marginal revenue (MR) equals marginal cost (MC) for each separate set of consumers. This is because in a perfectly competitive market, price equals marginal revenue. So if the firm charges different prices to different consumers, it must adjust its output accordingly to ensure that it is producing at the level where MR = MC for each group of consumers. Therefore, the correct choice is D: MR = MC.

When a Firm Practices Price Discrimination, for Each Separate Set