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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 13
The following conversation was overheard during a microeconomics cram session:
Student A. ''In order to maximize profits, a monopolist should obviously produce where the gap between price and average cost is the greatest.''
Student B.''No, that will only maximize profit per unit. To maximize total profits, the firm should produce where the gap between price and marginal cost is the greatest since that will maximize monopoly power and hence profits.''
Can you make any sense out of this drivel? Which concepts, if any, have these students not grasped sufficiently?
Student A. ''In order to maximize profits, a monopolist should obviously produce where the gap between price and average cost is the greatest.''
Student B.''No, that will only maximize profit per unit. To maximize total profits, the firm should produce where the gap between price and marginal cost is the greatest since that will maximize monopoly power and hence profits.''
Can you make any sense out of this drivel? Which concepts, if any, have these students not grasped sufficiently?
Explanation
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Student A's view that, to maximize profi...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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