A firm sells an identical product to two groups of consumers,A and B.The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits.Which of the following best describes the price and output strategy that will maximize profits?
A)PA = PB = MC.
B)MRA = MRB.
C)MRA = MRB = MC.
D)(MRA - MRB)= (1 - MC).

Question

Quizplus · Accepted Answer

In third-degree price discrimination, different groups of consumers are charged different prices for an identical product. The goal is to maximize profits by setting prices that reflect each group's willingness to pay. To achieve this, the firm should set prices such that the marginal revenue (MR) from each group is equal to the marginal cost (MC) of production. In this case, the optimal strategy would be to set both MRA and MRB equal to the marginal cost, which is the same for both groups, as the product being sold is identical. Therefore, the correct answer is C.

A Firm Sells an Identical Product to Two Groups of Consumers,A