E should the company raise or lower price the first

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ________________________________________________________________________________ 9. Optimal Price and Markup Rules We have seen two cases where a monopolist produces positive output: Summary of Monopoly Profit Maximization Problem for Case B Case D () When () When neither Case B or C occur found by () () These cases are shown below for a monopolist with a linear demand curve, constant returns and Rational “Monopoly”: PMP Case B Case D Supply Point Supply Point () () Unconstrained solution Unconstrained 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...
View Full Document

Ask a homework question - tutors are online