Chapter 2 Flashcards
Linear Demand Function
q(p) = a- b*p
Linear Demand Function Maximum sales revenue optimal price revenue optimal quantity maximum price
maximum sales quantity = a
maximum price = a/b
revenue optimal quantity = a/2
revenue optimal price = a/2b
Linear Demand function
price elasticity
price elasticity = dq/dp * p/q
dq/dp = -b
cross price elasticity
elasticity ab= dqa/dpb * pb/qa
if this > 0 for substitute
if this < 0 for complementary products
if this = 0 for unrelated products
Multiplicative Model
q(p) = a* p^b
elasticity of multiplicative demand function
b
Revenue function
R(p) = p *q(P)
condition for revenue maximum
the elasticity
elasticity (p) = -1
Profit function
P(p) = R(p)- C(x(p))
condition for profit maximum
elasticity = dq(p) /dp * p/q(p)
cournot price
profitmaximum price for linear demand function
p* = 1/2 (a/b + c)
Multiplicative demand function for profitmaximum price
p* = (b/1+b *c)
price maximization in an Oligopoly
condition : R = C
