PRICING - Luiscabral.net

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Notes on marginal revenue• What do you get from selling an extra unit?You get the price for which you sell it, but the additional(marginal) revenue is less than that.• Price must be lowered in order for an extra unit to be sold; thislowers the marginal on all u nits sold.• Formally,MR ≡ d Rd q=d (p × q)d q= p + d pd q q < p
The elasticity ruleMR = p + d pd q q = p + d pd qqp p = p + 1d q pd p qTherefore, MR = MC implies that p ( 1 + 1 ɛ)= MC , orp = MC1+ 1 ɛ(p = p 1 + 1 )ɛAlternatively, this may be written as p − MC = −p 1 ɛ, or simplym ≡ p−MCp= 1 −ɛ
Page 1 and 2: PRICING
Page 3 and 4: Example: Ice-cream pricing
Page 5 and 6: Ice-cream pricingtotal increm. incr
Page 7 and 8: Profit maximizationπ(q)d Profitd O
Page 9: MR=MC
Page 13 and 14: Demand elasticity and optimal monop
Page 15 and 16: Example• Product: new drug, prote
Page 17 and 18: Ice-cream pricing (reprise)• We d
Page 19 and 20: Optimal pricing: graphical intuitio
Page 21 and 22: Complications, I: demand interactio
Page 23: Takeaways• The optimal price depe

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