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### SN20

Course: ECON 100, Fall 2009
School: Bergen Community College
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Word Count: 289

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Notes Section 20, Econ 100A Spring 06 1 Section Notes 20 Covering material from Lecture on March 23rd Class Outline 1. Advertising 2. Factor Markets Finish Problems from last section notes. 1 Advertising As was discussed in lecture, when a rm starts to lose its monopoly advantage, one of the ways it continues to extract rents is by catering to consumer loyalty, or perceptions of quality. This is done through...

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Notes Section 20, Econ 100A Spring 06 1 Section Notes 20 Covering material from Lecture on March 23rd Class Outline 1. Advertising 2. Factor Markets Finish Problems from last section notes. 1 Advertising As was discussed in lecture, when a rm starts to lose its monopoly advantage, one of the ways it continues to extract rents is by catering to consumer loyalty, or perceptions of quality. This is done through advertising. We can then literally think about advertising as something a rm chooses over, and therefore optimizes over. Problem: (P&R, Chapter 11, Exercise 17) Consider a rm with monopoly power that faces the demand curve P = 100 3Q + 4A1/2 and has the total cost function C = 4Q2 + 10Q + A where A is the level of advertising expenditures, and P and Q are price and output. a. Find the values of A, Q, and P that maximize the rms b. prot. Calculate the Lerner index, L = (P M C)/P , at this rms prot-maximizing levels of A, Q, and P . Section Notes 20, Econ 100A Spring 06 2 2 Factor Markets So far weve been making prot maximizing choices from a given cost function where we choose a quantity to produce. However, from previous chapters weve seen that these cost functions really come from our choice of inputs. Therefore, we can equivalently think about maximizing prots, or making optimal production decisions over inputs. Problem: ...

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Minnesota - A - 05354
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Minnesota - A - 05051
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Minnesota - A - 05051
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Minnesota - A - 05051
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Minnesota - A - 05051
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Minnesota - A - 05051
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Minnesota - A - 05051
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