MGM230H5 Lecture Notes - Lecture 8: Forego, Complementary Good, Marginal Revenue
If not from a single product, may be maxing total present and future profits for all products. Sellers are certain about costs, prices are similar in an industry, price competition is minimized, consumers feel it"s fair: dis. adv. Ignores demand and competitors prices: monopoly pricing reflects first 2 factors, firms incorporate value and cost in determining prices, one seller, many buyers, no competition, face downward-sloping demand curves. Marginal revenue is lower than price: suppose per-unit marginal cost is constant: mc = c, sell up to the quantity where mr = mc. Q* = (a-c)/2b, p*= (a+c)/2: optimal price and quantity both depend on the price elasticity of demand and the costs, monopolists optimal price increases for. Segment market and sell to different segments and different prices: perfect price discrimination, charge each consumer his/her willingness to pay (wtp, wtp is max price consumer is willing to pay, firm must be able to.