ajaz_eco_204_2012_2013_chapter_16_Market_Power

E the firms price will always be and its revenues will

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Unformatted text preview: not distribute. Since , this requires: { } ⏟ Can we say anything more specific about the revenue maximizing output level and price point? First, consider a firm has with a constant unit elasticity demand model: For any positive output level (and therefore price point) such a firm will always have { } { } For any positive output level, the firm’s revenues will always be: Next, consider a firm constant elasticity demand model with : ( ) For any positive output level (and therefore price point) such a firm will always have { If } { } , an additional unit of output will always increase revenues so that the firm should produce at capacity, i.e. . The firm’s price will always be: () And its revenues will always be: () __________________________________________________________________________________________________ 6. Firms with Market Power: Profit Maximization Problem (PMP) In this section we model a monopolist which chooses output and sets price to maximize profits. We assume that: 38 ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) University of Toronto, De...
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