Your friend is going to start a business. One important decision he/she has to make is setting prices for the products. In economics, a firm may set its prices differently under different situations. Based on the economic theories learned in this course, explain to your friend how a profit-maximizing firm should set its prices under different situations.
-
Your friend is going to start a business. One important decision he/she has to make is setting
prices for the products. In economics, a firm may set its prices differently under different situations.Based on the economic theories learned in this course, explain to your friend how a profit-maximizing firm should set its prices under different situations.
Perfect competition: If the person starts his business in the perfect market situation, then the firm has to accept the market price and output level produced t the point where the price is equal to the marginal cost.
Monopoly: IF the person starts his business under the monopoly market structure, the equilibrium output and price is occurs at the point where the marginal cost is equal to marginal revenue and the equilibrium price is set corresponding demand level. The firm can obtain the entire consumer surplus by using the price discrimination strategy.
Step by step
Solved in 2 steps
