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ajaz_eco_204_2012_2013_chapter_16_Market_Power

# Eco 204 s ajaz hussain do not distribute for arguments

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Unformatted text preview: az Hussain. Do not distribute. () () ⏟ ⏟ , [ , , ⏟, [ ⏟] Let’s re-arrange the FOC: () ⏟ () ⏟ ⏟ ( ⏟ ⏟ ⏟ [ ⏟ [ ) [ If a company with market power is charging the “optimal” profit maximizing price then the price should be equal to the right hand side of this rule. Let’s do some examples to show that this rule confirms the optimal price. _________________________________________________________________________________________________ Example 1: Prestige Data Services’ Commercial Data Services: ● Hours ● = \$/hour , 71 ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. ⏟ For argument’s sake, suppose that capacity is 105% of maximum market size. Solve the PMP: ⏟ To find maximum market size, re-arrange the demand curve to get: , , The maximum market size is found by setting , Thus: ( ) The PMP becomes: ⏟ ⏟ () [, ⏟ ⏟ , ⏟ ⏟ ⏟ ⏟ Now we n...
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