C8-4-Markup_2010-04-30

C8-4-Markup_2010-04-30 - Markup Pricing Chapter 8 Profit...

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Markup Pricing 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. 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. Review Firms with market power maximize profit by choosing the price-quantity combination that makes marginal cost equal to marginal revenue. The price-quantity combination that maximizes profit is a point on the demand curve
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C8-4-Markup_2010-04-30 - Markup Pricing Chapter 8 Profit...

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