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ch09 - CHAPTER 9 PROFIT MAXIMIZATION Problems in this...

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CHAPTER 9 PROFIT MAXIMIZATION Problems in this chapter consist mainly of applications of the P = MC rule for profit maximization by a price-taking firm. A few of the problems (9.2–9.5) ask students to derive marginal revenue concepts, but this concept is not really used in the monopoly context until Chapter 13. The problems are also concerned only with the construction of supply curves and related concepts since the details of price determination have not yet been developed in the text. Comments on Problems 9.1 A very simple application of the P = MC rule. Results in a linear supply curve. 9.2 Easy problem that shows that a tax on profits will not affect the profit-maximization output choice unless it affects the relationship between marginal revenue and marginal cost. 9.3 Practice with calculating the marginal revenue curve for a variety of demand curves. 9.4 Uses the MR-MC condition to illustrate third degree price discrimination. Instructors might point out the general result here (which is discussed more fully in Chapter 13) that, assuming marginal costs are the same in the two markets, marginal revenues should also be equal and that implies price will be higher in the market in which demand is less elastic. 9.5 An algebraic example of the supply function concept. This is a good illustration of why supply curves are in reality only two-dimensional representations of multi-variable functions. 9.6 An introduction to the theory of supply under uncertainty. This example shows that setting expected price equal to marginal cost does indeed maximize expected revenues, but that, for risk-averse firms, this may not maximize expected utility. Part (d) asks students to calculate the value of better information.
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