Consider a Monopolist That Is Able to Distinguish Between Two

question 23

Multiple Choice

Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product. Marginal cost is constant at $18 for each unit produced. The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15. How can this firm maximize its profit?

• A) maintain the current output and its allocation across segments
• B) decrease the output in segments A and B
• C) decrease the output in segment A and increase the output in segment B
• D) increase the output in segments A and B
• E) increase the output in segment A and decrease the output in segment B

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Definitions:

Tax Policy

Refers to the principles and proposals governments use to design and implement taxes, affecting economic behavior, distribution of income, and fund public expenditures.

Income Quintile

A statistical measure dividing the population into five equal groups according to their income level to analyze economic inequality.

Lump-Sum Tax

A tax that is a fixed amount, not varying with the taxpayer’s income level or expenditure, making it independent of the taxpayer’s behavior.

Excise Tax

An excise tax is a tax charged on specific goods and services, such as gasoline, cigarettes, and alcohol, typically to discourage their use or generate revenue.