Unformatted text preview: irms with Market Power (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Thus, the only way to maximize profits is to be somewhere on the elastic portion of the demand curve.
9.2 The Only Ingredients for Price Setting are Price Sensitivity and Marginal Cost; Nothing Else Matters
“It is not that pearls fetch a high price because men have dived for them; but on the contrary, men dive for them because they fetch a high price ”
Richard Whately, Introductory Lectures on Political Economy What are the elements of optimal pricing? Does fixed cost matter? What about the maximum willingness to pay? The
optimal price rule tells us the two elements of the optimal price: when setting the optimal price management should
, and nothing else.
Consider for example the following results from a survey of professional pricing managers:
40 % [of executives] match online prices to those offline
30% [of executives] set all pri...
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