ajaz_204_2009_lecture_15

ajaz_204_2009_lecture_15 - University of Toronto Department...

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Unformatted text preview: University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 15 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) Today Firm with Market Power Optimal output and price Profit maximization No capacity constraint Capacity constraint The Kuhn Tucker technique for solving inequality constrained optimization problems Barriers to entry Ajaz Hussain. Department of Economics. University of Toronto (St. George) 2 Firm with Market Power Ajaz Hussain. Department of Economics. University of Toronto (St. George) 3 Firm (Producer) Q = A f(Inputs) Output Price Taker Inputs Price Maker Decisions Facing a Firm with Market Power: Choose optimal (target) output q Choose optimal price P Choose optimal inputs to produce target output q Supply Chain Model Ajaz Hussain. Department of Economics. University of Toronto (St. George) 4 Firm Output Inputs Price Maker Customer rice Taker Distribution Output Retail Output Firm Output Inputs Price Maker Customer rice Taker Distribution Output Retail Output Firm Output Inputs Price Maker Customer rice Taker Distribution Output Retail Output Micro Approach to Optimal Price Ajaz Hussain. Department of Economics. University of Toronto (St. George) 5 Price Output Demand Choose target output q Optimal price follows from demand Target output may be chosen to: Max Profits, Max Revenues, Min AC, etc. Marketing Approach to Pricing: ExampleS [Colgate Precision] could be positioned as a niche product to be targeted at consumers concerned about gum disease. As such, it could command a 15% price premium over Oral B.. Source: Colgate Precision HBS case The pricing will be a 20% premium above regular beer or more, the latter if exported. When the product is exported it will be higher due to the higher costs of transport Source : Heineken internal marketing memo on introduction of Buckler, November 11 th , 1987 Ajaz Hussain. Department of Economics....
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This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto- Toronto.

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ajaz_204_2009_lecture_15 - University of Toronto Department...

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