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

---

Definitions:

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the expected quantity, valued at standard cost.

Favorable

A term used in variance analysis indicating that actual costs were lower than budgeted or standard costs, leading to higher profits.

Unfavorable

A term used in variance analysis to describe a situation where actual results are worse than expected results, often leading to a negative impact on financial performance.

Raw Materials Price Variance

This variance highlights the difference between the actual cost of raw materials used in production and the standard or expected cost.