Learn Before
Profit Maximization Condition (MRS = MRT)
Deriving the Price Markup-Demand Elasticity Relationship from the First-Order Condition
Profit-Maximizing Price Markup
A profit-maximizing firm sets its price such that the price markup—defined as the ratio of the difference between price and marginal cost to the price itself—is equal to the inverse of the price elasticity of demand. [4, 8, 11] This core principle, often called the Lerner Index, is established by rearranging the first-order condition for profit maximization. [4, 6, 8, 11]
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Social Science
Empirical Science
Science
Economy
CORE Econ
The Economy 1.0 @ CORE Econ
Ch.1 The Capitalist Revolution - The Economy 1.0 @ CORE Econ
Economics
Introduction to Microeconomics Course
Related
Relationship Between Demand Curve Slope and Price Elasticity
Profit-Maximizing Price Markup
Profit-Maximizing Price Markup
Learn After
Figure 7.16 - Price Markup and Demand Elasticity
Low Competition and Inelastic Demand Lead to Higher Prices