GMS 402 Chapter Notes - Chapter 9: Marginal Revenue, Demand Curve, Oligopoly

• School: Ryerson University
• Department: Global Management Studies
• Course: GMS 402
• Professor: Bamidele Adekunle

Document Summary

In determining what price to charge, the manager must consider the impact of his or her decisions on other firms in the industry. For a given price reduction, a firm will sell more if rivals do not cut their prices (d2) than it will if they lower their prices (d1). In effect, a price reduction increases quantity demanded only slightly when rivals respond by lowering their prices. Similarly, for a given price increase, a firm will sell more when rivals also raise their prices (d1) than it will when they maintain their existing prices (d2). If rivals will match a(cid:374)(cid:455) p(cid:396)i(cid:272)e (cid:272)ha(cid:374)ge, the de(cid:373)a(cid:374)d (cid:272)u(cid:396)(cid:448)e fo(cid:396) the fi(cid:396)(cid:373)"s p(cid:396)odu(cid:272)t is gi(cid:448)e(cid:374) (cid:271)(cid:455) In this instance, the manager will maximize profits where the marginal revenue associated with demand curve d1 equals marginal cost. If (cid:396)i(cid:448)als (cid:449)ill (cid:374)ot (cid:373)at(cid:272)h a(cid:374)(cid:455) p(cid:396)i(cid:272)e (cid:272)ha(cid:374)ge, the de(cid:373)a(cid:374)d (cid:272)u(cid:396)(cid:448)e fo(cid:396) the fi(cid:396)(cid:373)"s p(cid:396)odu(cid:272)t is given by d2.