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Unformatted text preview: s take a counterexample: suppose PDS is charging (say) $800. Let’s use the rigorous optimal price rule to
confirm that $800 is not the optimal price. At a price of $800 we have:
, , Let’s check if this is true:
[ Thus, a price of $800 is not optimal.
We have seen that 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: 74
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 a practical version of this rule, one that a “small” business can use, assume that the optimal output falls under one of
these 3 scenarios:
, ⏟ ,
, In each of these 3 scenarios we have: [
[ ⏟ [ ⏟ ⏟ This is the rule you’ll see in most economics and marketing courses and is easy to use in practice since
the seller and since can be computed in two different ways: is known to ̅
Notice that com...
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- Fall '14
- The Land