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E cases b and d that lets use 52 eco 204 chapter 16

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Unformatted text preview: d compare the profit maximizing price with the revenue maximizing price – which is higher? ( )( ( ) ) [( ( ) ) ( ) [( ) __________________________________________________________________________________________________ Example 3: Suppose a monopolist has a constant elasticity demand function: Assume that , and that the firm has constant returns: Assume that We argued earlier that whenever unconstrained solution that and which for a company with a constant elasticity demand model that Let us prove this once again. The general PMP is: (i.e. cases B and D) requires ⏟ Re-arranging and subbing in price: () [( ) ] ⏟ ⏟ We have shown that whenever this fact: unconstrained solution (i.e. cases B and D) that . Let’s use () 52 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. { } Profit maximization in cases B and D means that: { Since , } this requires: { } ⏟ This is a slightly different result than RMP where for cases B an...
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