ajaz_eco_204_2012_2013_chapter_16_Market_Power

First revenues from above we see that if then the firm

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Unformatted text preview: t we know that: “changed infinitesimally” : then the total change is: so that: For “large” changes this is: Having shown this, we see that if: Notice that as the company lowers price and produces more output (i.e. the same depends on: ) whether revenues rise, fall, or stay 56 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. | | { | | | | In plain English: ( ( ) ( ) ) ( ) We can now show why it’s impossible to maximize revenues or profits on any price point on the inelastic portion of the demand curve. First, revenues: from above, we see that if , then the firm can earn higher revenues from raising its price. Next profits: suppose that currently if the firm raises its prices, revenues rise, and total variable cost falls or stays the same – either way, profits must increase. This shows that it’s impossible for revenues or profits to be maximized when . We will return to this point after the following section. Exercise: In...
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This document was uploaded on 01/19/2014.

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