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9. Optimal Price and Markup Rules
We have seen two cases where a monopolist produces positive output:
Summary of Monopoly Profit Maximization Problem for
When neither Case B or C occur
() These cases are shown below for a monopolist with a linear demand curve, constant returns and Rational “Monopoly”: PMP
Case B Case D Supply
solution Demand Demand In this section, we derive practical methods for checking whether the current price maximizes profits and if not, what to
do about it (i.e. should the company raise or lower price?). The first rule, the “optimal price rule”, stems from a rearrangement of the PMP FOC. For your convenience, here is the FOC and KT conditions of the PMP: , , ()
⏟ () [ [ ⏟] () 70
ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Aj...
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- Fall '14
- The Land