A Rule of Thumb for Pricing 6. is maximized MR=MC D D MC 1+1E Chapter 10 Slide 26
Chapter 10 Slide 26 A Rule of Thumb for Pricing ( ) D D D 1 1E MC P E E 1 P P i smaximized @MR MC + = = − + = 1 6.
A Rule of Thumb for Pricing the markup over mc as a E, percentage of price(P-MC)/P 8. The markup should equal the inverse of the elasticity of demand Chapter 10 Slide 27
Chapter 10 Slide 27 = the markup over MC as a Ed percentage of price (P-MC)/P 1 7. − A Rule of Thumb for Pricing 8. The markup should equal the inverse of the elasticity of demand
A Rule of Thumb for Pricing Mc 9.P= Assume 4MC=9 9 9 =$12 l 75 Chapter 10 Slide 28
Chapter 10 Slide 28 A Rule of Thumb for Pricing ( ) $12 .75 9 4 1 1 9 4 9 1 1 9 = = − + = = − = + = . P E MC Assume E MC P d d
Monopoly a Monopoly pricing compared to perfect competition pricing ● Monopoly P>MC Perfect Competition P= MC Chapter 10 Slide 29
Chapter 10 Slide 29 Monopoly ◼ Monopoly pricing compared to perfect competition pricing: ⚫ Monopoly P > MC ⚫ Perfect Competition P = MC
Monopoly a Monopoly pricing compared to perfect competition pricing e The more elastic the demand the closer price is to marginal cost o If Ed is a large negative number, price is close to marginal cost and vice versa Chapter 10 Slide 30
Chapter 10 Slide 30 Monopoly ◼ Monopoly pricing compared to perfect competition pricing: ⚫ The more elastic the demand the closer price is to marginal cost. ⚫ If Ed is a large negative number, price is close to marginal cost and vice versa