118k views
1 vote
Firm C has identified two distinct market segments with demand curves as follows:

Segment A: P_A = 30,000 - 50Q_A
Segment B: P_B = 25,000 - 70Q_B
a) What is the optimal pricing policy for this firm if they operate in both of these market segments?

User Chicowitz
by
7.9k points

1 Answer

2 votes

Final answer:

The optimal pricing policy requires the monopolistic firm to set different prices for each segment. The firm calculates marginal revenue for each segment and sets quantity where it equals marginal cost. The price is then determined from the demand curve for that quantity.

Step-by-step explanation:

The optimal pricing policy for Firm C operating in two distinct market segments involves setting different prices for each segment to maximize profits. Since the firm is presumably acting as a monopolist in each segment, it would set output where marginal revenue equals marginal cost in each segment, and then charge the maximum price for that quantity based on the segment's demand curve.

To find the profit-maximizing quantity and price for each segment, the firm would first calculate the marginal revenue for each segment by differentiating the total revenue function with respect to quantity. Then, they must compare it with their marginal cost to find the quantity where marginal revenue equals marginal cost. The optimal quantity is then substituted back into the demand curve to find the corresponding price.

For Segment A, the demand function is P_A = 30,000 - 50Q_A, and for Segment B, it is P_B = 25,000 - 70Q_B. If we assume the firm operates where marginal revenue equals marginal cost for each segment, the firm would then use calculus and other economic analysis methods to find the optimal quantity (Q) and price (P) for each segment.

User Carlos Siestrup
by
7.9k points