Optimal Firm Markup (Optimal Price and Elasticity)

[@Ak-lov]

Your videos are saving my life and i just hope will continue to post more videos thank you so much .

[@Ak-lov]

Really helpful thank you so much ❤

[@amanullahhh01811]

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[@econhelp_official]

I'm from Sydney! Glad to see you liked the video, thanks so much for the comment!

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[@econhelp_official]

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[@julielyu7742]

​@@econhelp_official extremely helpful!

[@econhelp_official]

@@julielyu7742 thank-you! good luck with your study!! ❤

[@WijthaGayan]

Why do firms operate at their efficient scale in the long run in a perfectly com- petitive market?

[@econhelp_official]

Hi Wijtha, (edited) sorry to change this 7 months post, I'm more sure of this now and wanted to correct my previous comment that was unsure: firms in perfect competition will operate at LRATC(min) given entry and exit dynamics that push out any profit or loss. P.s. Hope you are well and did okay in your class! :)

[@nemanjalovre3286]

max πi = TR(qi)- TC(qi)= pi(qi) · qi - TC(qi) First order condition: pi+qi * (∂pi)/(∂qi )=MC ; pi [1+qi/pi * (∂pi)/(∂qi )]=MC p[1-1/|ε| ]=MC → (p - MC)/p=1/|ε| Elasticity is calculated as follow: ε=-∂q/∂p p/q 1/ε=-∂p/∂q * q/p the inverse of elasticity is given by the derivative of the inverse demand curve with respect to quantity Is my prof crazy or I just can't figure it out orrrr it has something to do with abs value of elasticity? why his formula for elasticity of the demand is calculated with minus? Sorry for the format of the comment, hope you'll have time to answer. Thanks!

[@econhelp_official]

Hi Nemanja, what you have described is called the Lerner index. en.m.wikipedia.org/wiki/Lerner_index I can’t quite follow how your prof has derived the condition with the absolute value, note the Wikipedia article has the negative of 1/the elasticity. however, since elasticity of demand is always negative, the negative of a negative will be positive, so the Wikipedia derivation is equivalent (in spirit ) to taking 1/absolute value. Does that help?

[@uzayrkhan9201]

You take the negative elastic sign up and then absolute the elasticity. This is done to make it easier since elasticity is always negative

[@nemanjalovre3286]

@@econhelp_official yes, thank you for your time!