Chapter Nine: Profit Maximization
Chapter 9 Lecture Notes 6 The demand curve has constant slope, so the second term on the right hand side is constant. The ratio of p to q is large at the top of the demand curve, making demand near ... So, if the price elasticity of demand is –2, the profit maximizing price is: 2 MC 1 2 MC 1 2 2
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Chapter Nine: Profit Maximization
faculty.metrostate.eduChapter 9 Lecture Notes 7 + = − = − = + = = + = ε ε ε ε ε 1 p MC p 1 p MC p MC p MC 1 MR p 1 MR MC So, if the price elasticity of demand is –2, the profit maximizing price is: 2 MC 1 2 MC 1 2 2 * MC = ⋅ − − = ⋅ − − p = So, the profit maximizing price will be two times the marginal cost. This formula only works if demand ...
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