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Unformatted text preview: ensated on the basis of net sales (revenues) not net income (profits). As you saw in ECO 100, the revenue maximizing output generally happens to be larger than the profit
maximizing output. Many upstart companies may wish to establish “market presence” first and make money 7 Source: Gamsi, Laffont, Vuong, “Econometric Analysis of Collusive Behavior in a Soft-Drink Market”, Journal of Economics and Management
Strategy (Summer 1992). Models based on quarterly data 1968 – 1986.
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. later. For example, in its early years Amazon targeted revenue maximization and after gaining market presence
did it switch to profit maximization. The company has no variable costs, or has negligible variable costs. For example, bridges, tunnels, software,
video games, etc. have substantial fixed costs but practically negligible variable costs (more precisely, negligible
marginal cost). As we’ll see later, when
) the profit maximizing output and price coincides...
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This document was uploaded on 01/19/2014.
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