HON 1302 Lecture Notes - Lecture 17: Profit Maximization, Marginal Revenue, Demand Curve
11 Apr 2017
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Document Summary
Often there is one firm which is the largest and referred to as the dominant firm: has enough power to set the price. Two types of competition: 1) price competition, 2) non-price competition. Companies have huge budgets for advertising sometimes in the billions: price competition is much stronger in the market than non-price competition. Consumers care more about what they"re paying than the advertisements they see. So if you want to compete with a firm, focus more on price competition than non-price competition. Demand has two slopes and is bent (kinked) If a firm raises prices, competitors hesitate to follow. If a firm lowers prices, competitors are quick to follow. Marginal revenue = slope of demand. Even when marginal cost changes, because of the break in the demand curve and thus the marginal revenue curve, production doesn"t change because marginal cost still intersects marginal revenue at the same point.
