CA Foundation · Business Economics · Price Determination in Different Markets
A discriminating monopolist sells in two separate markets with demands P1 = 100 - 2Q1 and P2 = 60 - Q2. Marginal cost is constant at ₹20. What prices should it charge in Market 1 and Market 2 respectively?
The monopolist should charge ₹60 in Market 1 and ₹40 in Market 2. Equating each market's MR to MC of ₹20 gives 20 units in each market, and substituting into the demand curves gives prices of ₹60 and ₹40 respectively.
- A₹60 and ₹40Correct
- B₹50 and ₹40
- C₹60 and ₹30
- D₹40 and ₹60
Explanation
Market 1: MR1 = 100 - 4Q1 = 20, so Q1 = 20 and P1 = 100 - 40 = 60. Market 2: MR2 = 60 - 2Q2 = 20, so Q2 = 20 and P2 = 60 - 20 = 40. Check: MR equals 20 in both markets, and the less elastic market pays more. The option ₹50 and ₹40 comes from wrongly using the demand slope as MR slope.
Did you get it right without looking?
One question tells you little. A timed set on Price Determination in Different Markets shows your real accuracy, how long you take and where you lose marks.
More Price Determination in Different Markets questions
- A coaching institute in a city sells the same course to two separate groups, students and working professionals, charging different fees bec…
- A firm in monopolistic competition is earning supernormal profits in the short run. According to the standard theory, what is the likely lon…
- Compared with a perfectly competitive market with the same costs, a profit-maximising single-price monopolist typically produces:
- In a perfectly competitive market for wheat, thousands of farmers produce identical output. The current market price is ₹2,500 per quintal. …
- A firm in a perfectly competitive market sells at a market price of ₹40 per unit. At its present output, marginal cost is ₹40 and rising, an…
- A monopolist faces the demand function P = 80 - 4Q and has total cost TC = 200 + 8Q. What is the profit-maximising output and the maximum pr…