0 views

Uploaded by Samer

Micro Economy

Micro Economy

© All Rights Reserved

- Chapter 9
- BasiliskII_Manual.pdf
- Econ330-notesPartI
- IMG_0001
- Logitech Mouse M505 Manual
- Canon Powershot Sx110is Cug En
- 6EC01, 6EC02 June 2009 MS
- bài tập mic
- pinalunggay- mrktg aspect with data (1).docx
- Microeconomics Ch 22
- coolpix_S4_12p
- MATH111 Mid1 2012F Nichifor
- Improving Corporate Management Performance English Version Osvaldo
- BUS 364
- Demand Estimation
- tkMath week 2
- Siddharth 2017FPM016
- Table%201%20ExecSumm%20Asian%20Backbone%20Study%201 7
- MousePen i608
- Biography of Steve Jobs

You are on page 1of 3

I. Calculus and Optimization Techniques: refer to the Appendix and the Analytical

Preliminaries.

1. Revenue

1) The law of demand: All other factors held constant, the higher the unit price of

a good, the fewer the number of units demanded by consumers and,

consequently, sold by firms.

2) Downward sloping demand curve: P on the vertical axis and Q on the

horizontal axis.

3) Demand equation: mathematical representation of the demand curve; for any

price a firm charges, the demand equation predicts the resulting quantity of the

good that will be sold.

4) Inverse demand equation: For any quantity of the good that a firm plans to

sell, the inverse demand equation predicts the price needed to sell exactly this

quantity.

5) Revenue function: R=P·Q, where P comes from the inverse demand equation.

2. Cost: C=FC+VC.

3. Profit: π = R – C.

1. Marginal profit: the change in profit resulting from a small change in any

managerial decision variable, e.g., output.

2. Mπ = (change in profit)/(change in output)=∆ π/∆Q=d π/dQ.

3. If Mπ=$12 thousand at Q=3 lots, what does it mean?

4. Graphically, marginal profit at a particular Q is given by the slope of the tangent

line touching the profit curve at that output level.

1) Upward sloping tangent: Mπ>0.

2) Downward sloping tangent: Mπ<0.

3) Horizontal tangent: Mπ=0.

5. Maximum profit is attained at Q* where Mπ=0.

1) Marginal analysis: Expand an activity if and only if the extra benefit exceeds

the extra cost.

2) If Mπ>0, Q<Q*, the firm should increase output to increase profit, until

Mπ=0.

3) If Mπ<0, Q>Q*, the firm should reduce output to increase profit.

6. After finding out Q*, we can use inverse demand equation to find out P*. Then

we can use the equations to find out R, C and π resulting from the firm’s optimal

output and price decision.

1. Marginal revenue.

1) MR = (change in revenue)/ (change in output) =∆ R/∆Q=d R/dQ.

1

2) Graphically, marginal revenue at a particular Q is given by the slope of the

tangent line touching the revenue curve at that output level.

3) For a linear demand curve with an inverse demand equation of the form

P=a – bQ, the resulting marginal revenue is MR=a – 2bQ.

4) Revenue is maximized at an output where MR=0: if MR>0, increase output to

increase revenue until MR=0.

2. Marginal cost.

1) MC = (change in cost)/ (change in output) =∆ C/∆Q=d C/dQ.

2) Graphically, marginal cost at a particular Q is given by the slope of the tangent

line touching the cost curve at that output level.

3. Profit maximization revisited.

1) Mπ=MR – MC.

2) Q* occurs at Mπ=0, or MR=MC.

a. If MR>MC, Mπ>0, Q<Q*, the firm should increase output to increase

profit, until MR=MC and Mπ=0.

b. If MR<MC, Mπ<0, Q>Q*, the firm should reduce output to increase

profit.

1. Fix cost changes.

2. Marginal cost changes.

3. Demand changes.

Practice Problems: 4, 6, 7a, 7c, 12 in the textbook and the mini-case on the next page.

2

Apple Computer in the Mid 90s

Between 1991 and 1994, Apple Computer engaged in a holding action in the desktop

market dominated by PCs using Intel chips and running Microsoft’s operating system.1

In 1994, Apple’s flagship model, the Power Mac, sold roughly 10,000 units per month at

an average price of $3,000 per unit. At the time, Apple claimed about a 9% market share

of the desktop market (down from greater than 15% in the 1980s).

By the end of 1995, Apple had witnessed a dramatic shift in the competitive environment.

In the preceding 18 months, Intel had cut the prices of its top-performing Pentium chip by

some 40%. Consequently, Apple’s two largest competitors, Compaq and IBM, reduced

average PC prices by 15%. Mail-order retailer Dell continued to gain market share via

aggressive pricing. At the same time, Microsoft introduced Windows 95, finally offering

the PC world the look and feel of the Mac interface. Many software developers began

producing applications only for the Windows operating system or delaying development

of Macintosh applications until months after Windows versions had been shipped.

Overall, fewer users were switching from PCs to Macs.

Apple’s top managers grappled with the appropriate pricing response to these competitive

events. Driven by the speedy new PowerPC chip, the Power Mac offered capabilities and

a user-interface that compared favorably to those of PCs. Analysts expected that Apple

could stay competitive by matching its rivals’ price cuts. However, John Sculley, Apple’s

CEO, was adamant about retaining a 50% gross profit margin and maintaining premium

prices. He was confident that Apple would remain strong in key market segments – the

home PC market, the education market, and desktop publishing.

Questions.

1. In 1994, the marginal cost of producing the Power Mac was about $1,500 per unit, and

a rough estimate of the monthly demand curve was: P = 4,500 - .15Q. At the time, was

Apple’s output and pricing policy optimal?

2. By the end of 1995, some analysts estimated that the Power Mac’s user value (relative

to rival PCs) had fallen by as much as $600 per unit. Apple’s new demand curve at end-

of-year 1995 was given by: P = 3,900 - .15Q. How much would sales fall if Apple held to

its 1994 price? Assuming a marginal cost reduction to $1,350 per unit, what output and

price policy should Apple now adopt?

1

This account is based on J. Carlton, “Apple’s Choice: Preserve Profits or Cut Prices,”

The Wall Street Journal, February 22, 1996, p. B1.

- Chapter 9Uploaded byBenja
- BasiliskII_Manual.pdfUploaded bymybluemidgethotmailc
- Econ330-notesPartIUploaded byĐoàn Ngọc Thành Lộc
- IMG_0001Uploaded byAshish Kumar Annepu
- Logitech Mouse M505 ManualUploaded bybmmanuals
- Canon Powershot Sx110is Cug EnUploaded byAnonymous 7mhjvmjRdM
- 6EC01, 6EC02 June 2009 MSUploaded byLisa Loo
- bài tập micUploaded byNguyen Hai Anh
- pinalunggay- mrktg aspect with data (1).docxUploaded bynica
- Microeconomics Ch 22Uploaded bykarim kobeissi
- coolpix_S4_12pUploaded byVuk Stankovic
- MATH111 Mid1 2012F NichiforUploaded byexamkiller
- Improving Corporate Management Performance English Version OsvaldoUploaded byOsvaldo Quiroz Leyton
- BUS 364Uploaded bySantoshKumar
- Demand EstimationUploaded bydhruvaa
- tkMath week 2Uploaded byLythen William
- Siddharth 2017FPM016Uploaded bysidthefreak809
- Table%201%20ExecSumm%20Asian%20Backbone%20Study%201 7Uploaded bylirneasia
- MousePen i608Uploaded byMali Dušica
- Biography of Steve JobsUploaded byKaran Saxena
- Revision Questions and Completed Glossary for Economics (1)Uploaded byXanh Va
- ReadMeUploaded byschulz_alec
- The Theory of the FirmUploaded byhpeter195798
- Makeup Quiz 2 2017 Spring AnswerUploaded byMo Wai Yung
- powerpoint competitve firmUploaded byeverjeanj
- Install Notes 8 MacUploaded byOscar Betancur Jaramillo
- Business Environment.docxUploaded bybhavnesh
- 081 NZIA and UDF (a Thompson) - Hearing StatementUploaded byBen Ross
- Apple IncUploaded byalimansoorshahid
- LimitsUploaded byDhanraj Bi

- Solution to Ch7Uploaded bySamer
- Handout for Chapter 6Uploaded bySamer
- Review Ch12 and 13Uploaded bySamer
- Review Ch7Uploaded bySamer
- Handout for Chapter 8Uploaded bySamer
- Handout for Chapter 7Uploaded bySamer
- PreliminariesUploaded bySamer
- Practice Problems Ch.5Uploaded bySamer
- Handout for Chapter 3 Demand ChangedUploaded bySamer
- Handout for Chapter 5Uploaded bySamer
- Handout for Chapter 12and13Uploaded bySamer
- Review Ch3demandUploaded bySamer
- Practice Problems Ch.7Uploaded bySamer
- Bookstore SolvedUploaded bySamer
- Review Ch8Uploaded bySamer
- Practice Problems Ch.8Uploaded bySamer
- Review Ch6 ModifiedUploaded bySamer
- Practice Problems Ch.6Uploaded bySamer
- Review Ch2Uploaded bySamer
- Review Ch5Uploaded bySamer
- Practice Problems Ch.3Uploaded bySamer
- Solution to Ch8Uploaded bySamer
- Bookstore ProblemUploaded bySamer
- Solution to Ch2 (1)Uploaded bySamer
- Solution to Ch3Uploaded bySamer
- Solution to Ch5Uploaded bySamer
- Solution to Ch6Uploaded bySamer
- ChairsUploaded bySamer
- Note About Replacement Data Files (NP Excel 2016) 10-28-16Uploaded bySamer

- Types of ContractsUploaded byNaeem Ahmed Umrani
- stUploaded byShazia Gilal
- MONOPOLY.docUploaded bytegegn mogessie
- 10e 13 Chap Student WorkbookUploaded bymittalnipun2009
- Theories of EntrepreneurshipUploaded byChetan Sharma
- Sistemas de producción de gallinasUploaded byRocío Citlalli
- +Strategy+Uploaded byChetanBansal
- Eco404Eco404obj Questionobj QuestionUploaded byh4habib
- marketing402mUploaded byphantomknight912
- 9160261Uploaded byCeline Yap
- Chapter 4.pptxUploaded bySaad Farooq
- Edexcel Economics NotesUploaded byAY6061
- Bussiness EconomyUploaded byNageshwar Singh
- Purchasing Portfolio ModelUploaded byFrido Wilbard
- Cap1 Case Study IbsUploaded bycasepartner
- Capital, Interest, And Rent Essays in the Theory of DistributionUploaded byMadu Biru
- Characteristics of OligopolyUploaded byMuhammad Amir
- Case Studies Intermediate Going-UnderUploaded bytarek
- Financial Performance Benchmarking Webinar -- 20170316Uploaded byralucastanescu
- 2000 AP Microeconomics Released ExamUploaded byJoseph Weng
- f06 assignmntUploaded byAmrit Pal Singh
- csr 2Uploaded bywaqole
- MicroeconomicsUploaded bypanganibanbea
- MGT602(5)Uploaded bywqas_akram
- Chapter 12.docUploaded bydiane camansag
- Scalping Forex With Bollinger BandUploaded byHeru Setiawan
- Solution Manual for Microeconomics 9th Edition by PindyckUploaded bya571033119
- Journal of Business StrategiesUploaded byuditdubey
- Sony IncUploaded bysatnam_monu
- Managerial EconomicsUploaded byPulkit Gupta