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Unformatted text preview: Monopoly Power Chapter 8 Profit Maximization ECON 303 Managerial Economics, Spring 2010 Edward L. Millner , Department of Economics Copyright Millner 2009-10 Before class Read the Learning Objectives for this chapter Organize your notes from the previous class. Studies show that if you review and organize your notes the day you take them you will retain 80% of the information for 8 weeks. Read the review material. Write down answers to the Review Questions that are due. Be ready to submit your answers with your clicker at 11:00. Work on each of the Lecture Problems . Read the notes linked to them and the pages in the book that the notes reference. Pay close attention to the demonstration problems in the book. Jot down an answer, an outline to an answer, the beginning of an answer, or I am lost, next to each question. Be ready to read aloud upon request what you have written. Read what is next . Learning Objectives The student will understand that optimizing decisions are based on the principle of equating marginal (or incremental) benefits to marginal (or incremental) costs, that the price taking firm optimizes where MR = P = MC and focuses on determining the optimal output, that the price setting firm optimizes where P> MR = MC and focuses on determining both the optimal output and the price corresponding to that output, and that firms lacking precise product demand information may use alternative pricing techniques such as markup pricing. Demonstrable outcomes are the abilities to: Determine the profit maximizing level of output for a perfect competitor. Determine the shut-down price for a perfect competitor. Determine the profit maximizing level of output for a firm with monopoly power. Determine the profit maximizing price for a firm with monopoly power. Monopoly Power, p. 1 of 5 Review Perfect competitors may suffer loss when marginal revenue equals marginal cost o In this case profit maximization is equivalent to loss minimization o The firm maximizes profit when marginal revenue equals marginal cost as long as price exceeds average variable cost o The firm maximizes profit by shutting down and producing no output when the...
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