The following graph shows the demands and marginal revenue in two markets,1 and 2,for a price discriminating firm along with total marginal revenue,MR_T,and marginal cost. What total output should the firm produce? A)275 units B)225 units C)175 units D)350 units E)100 units

Question

Quizplus · Accepted Answer

The firm should produce where its total marginal revenue intersects with its marginal cost curve. This occurs at a total output of 225 units. At this output, the firm charges a higher price in market 1 where demand is more inelastic and a lower price in market 2 where demand is more elastic. This allows the firm to maximize profits by extracting more consumer surplus from market 1 while still selling to market 2 at a price that covers the marginal cost of production.

The Following Graph Shows the Demands and Marginal Revenue in Two