In this chapter we will assume that the firms

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Unformatted text preview: irms with market power may have, amongst many others, any one of these objectives: choose output to maximize revenues over one or several periods; choose output to maximize profits over one or several periods; choose output to minimize average cost over one or several periods; choose price to deter future entrants, etc. In this chapter, we will assume that the firm’s objective is to choose the revenue maximizing or the profit maximizing output over one period (by analyzing one period models we don’t have to worry about determining inventory levels over time). 3.1 Demand Models for Firms with Market Power To solve a either a Revenue Maximization Problem (RMP) or a Profit Maximization Problem (PMP) we need to have the firm’s demand model. Here are three ways to acquire a demand model: Demand Model From “factoid” From Utility Maximization Problem From Regression Analysis with data on , Estimating demand model by a factoid: By “factoid” we mean that we have some information which allows us to estimate the dema...
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This document was uploaded on 01/19/2014.

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