A firm practices first-degree price discrimination. The demand for the firm's product is defined as QD = 20 - 2P. If the firm has a constant marginal cost of production equal to $7 and the product is infinitely divisible, how much output should it produce to maximize profit?
A) 3
B) 5
C) 6
D) None of the above is correct.

Question

Quizplus · Accepted Answer

In first-degree price discrimination, the firm charges each consumer their maximum willingness to pay. The firm maximizes profit by producing where marginal cost equals marginal revenue. Here, MR = MC = $7. Solving for Q when P = 7 in the demand equation: 7 = (20 - Q)/2, gives Q = 6.

A Firm Practices First-Degree Price Discrimination