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E where suppose that currently the right hand side of

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Unformatted text preview: function we see that Use the optimal price rule: _________________________________________________________________________________________________ The “optimal price rule” can be re-arranged to yield the “optimal markup rule”: [ ( ) ( ( ( ) ) ) Here are some insights we can glean from these two rules9: Optimal price rule Optimal markup rule [ 9.1 The Optimal Price Rule Confirms that Profits Cannot be Maximized when We argued earlier that profits can’t be maximized at any price point where . Does this result follow from the optimal price rule? Yes. Here’s an example: suppose and assume the firm has set the price on the inelastic portion of the demand curve (i.e. where ). Suppose that currently . The right hand side of the optimal price rule is: This yields a negative price (i.e. the company pays customers to buy goods!). In fact, any price. Similarly, implies an infinite price: 9 will give a negative Note to self: re-write this part. The writing sucks. 76 ECO 204 Chapter 16: Analysis of F...
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