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When a discriminating monopolist has reached equilibrium across two sub-markets A and B, where A has less elastic demand, the price charged will be:
AHigher in B than in A, with equal MR in both
BHigher in A than in B, with equal MR in both
CEqual in both markets, with equal MR in both
DHigher in A than in B, with MR higher in A
Answer & Solution
Correct answer: B. Higher in A than in B, with equal MR in both
1. Equilibrium requires MR to be equal across the two sub-markets and equal to MC of total output.
2. A discriminating monopolist sets a higher price where demand is less elastic.
3. Market A is less elastic, so it bears the higher price.
4. So price is higher in A while marginal revenues are equalised in both markets.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.18_
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