Chapter14

Chapter14 - 1 MANAGERIAL ECONOMICS An Analysis of Business...

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Unformatted text preview: 1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall 2 Chapter 14: Pricing in Theory Objectives: To examine theoretical aspects of the pricing decision, including basic rules for optimal pricing pricing and market structures pricing and entry conditions - the pre-game theory approach price discrimination pricing and the product life cycle 3 The Basic Rule for Profit- Maximization (Price - Marginal Cost)/Price = 1/-E d Not an operational decision rule - a statement of the condition required for maximum profit Can be re-stated in an average cost plus margin format - see p.292 4 Pricing and Market Structures Review Chapter 10 Under perfect competition, firms are price- takers Under monopoly, firms are price-makers (but still constrained by the requirement to make maximum profit) Under monopolistic competition, prices settle at the excess capacity level where P=AC 5 Pricing in Oligopoly Review Chapter 13 on Cournot, Bertrand and von Stackelberg competition The conjectural variation approach P - MC = (-) s i (1+a) P E d Where s i = firms market share; a =conjectural variation 6 Entry Conditions and Pricing Entry may be blockaded, effectively impeded or uneffectively impeded Entry barriers are advantages held by incumbent firms, arising from: absolute cost advantages economies of scale product differentiation 7 Limit Pricing The limit price is the highest price that can be charged without inducing new entry Can it be determined?...
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Chapter14 - 1 MANAGERIAL ECONOMICS An Analysis of Business...

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