Consider a monopolist selling in two markets. At a price of 60, the elasticity of demand in market A is 5 and in market B is 6. Calculate the marginal revenue in both markets and determine which market should receive more output.
(A) Market A, MR = 48; Market B, MR = 50, output t

Question

Consider a monopolist selling in two markets. At a price of 60, the elasticity of demand in market A is 5 and in market B is 6. Calculate the marginal revenue in both markets and determine which market should receive more output.
(A) Market A, MR = 48; Market B, MR = 50, output to market B should increase
(B) Market A, MR = 50; Market B, MR = 48, output to market A should increase
(C) Both markets have equal MR
(D) Neither market should change output

Accepted Answer

> [!TLDR]
> With $P = 60$: $MR_A = 60(1-1/5) = 48$ and $MR_B = 60(1-1/6) = 50$; since $MR_B > MR_A$, sell more in market B.

### Working — price discrimination across markets

Formula, with $P = 60$:

$$MR = P\left(1 - \frac{1}{E}ight)$$

**Market A** ($E = 5$):

$$MR_A = 60\left(1 - \frac{1}{5}ight) = 60 	imes 0.8 = 48$$

**Market B** ($E = 6$):

$$MR_B = 60\left(1 - \frac{1}{6}ight) = 60 	imes \frac{5}{6} = 50$$

A profit-maximising monopolist equalises MR across markets by reallocating output to where MR is higher. Here $MR_B (50) > MR_A (48)$, so output should be increased in **market B** (the more elastic market, which also gets the lower price). …

Price Discrimination

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Working — price discrimination across markets

Working — price discrimination across markets

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