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CA Foundation · Business Economics · Price Determination in Different Markets

A monopolist sells in two separate markets with a constant marginal cost of ₹10. Demand in Market A is P = 50 − Q and in Market B is P = 30 − Q. What prices maximise profit under third-degree price discrimination?

The prices are ₹30 in Market A and ₹20 in Market B. Equating marginal revenue to the marginal cost of ₹10 in each market gives quantities of 20 and 10, and substituting into each demand curve gives prices of ₹30 and ₹20 respectively.

  1. A₹30 in A and ₹20 in BCorrect
  2. B₹25 in A and ₹15 in B
  3. C₹40 in A and ₹20 in B
  4. D₹30 in A and ₹10 in B

Explanation

Set MR = MC in each market. A: MR = 50 − 2Q = 10, so Q = 20 and P = 30. B: MR = 30 − 2Q = 10, so Q = 10 and P = 20. Check: the price in the market with less elastic demand is higher, which agrees. Option ₹25 and ₹15 would come from the average of intercept and MC wrongly taken as price.

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