Final answer:
I agree with Mr. Henry's worker on applying the 'Law of Diminishing Marginal Returns', suggesting production should cease at the point where MR equals MC; for Mr. Henry, this is at 90 units. Price discrimination can maximize profits if conditions like market power, no resale, and market segmentation are met. This efficiency and strategic pricing help the firm stay profitable.
Step-by-step explanation:
I agree with Mr. Henry's worker regarding the application of the 'Law of Diminishing Marginal Returns'. The marginal revenue (MR) and marginal cost (MC) approach indicates that Mr. Henry should produce to the point where MR equals MC to maximize profits, which is at a quantity of 90 units. This strategy ensures that the firm avoids producing extra units that would decrease profits.
The concept of price discrimination refers to the strategy of selling the same product to different buyers at different prices. For price discrimination to be successful, there must be market power, no resale, and the ability to segment markets. An example for Mr. Henry's product could involve charging different prices based on age, location, or purchase quantity.
Applying these concepts ensures that the firm operates efficiently by not exceeding the output level where additional production would lead to higher costs than revenue, hence diminishing profits. It also allows the firm to capture more consumer surplus through differential pricing strategies.