profit maximization

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1、ProfitMaximization9LearningObjectivesAfterreadingthischapter,studentsshouldbeableto:}Describetherelationshipbetweenafirm’sprofit-maximizingsalesquantityandthefirm’smarginalrevenueandmarginalcost.}Demonstratehowprice-takingfirmsshoulddeterminetheirprofit-maximizin

2、gsalesquantities.}Determineaprice-takingfirm’ssupplyfunction.}Explainwhyprice-takingfirmsusuallyrespondtopricechangesmoreoverthelongrunthantheydoovertheshortrun.}Defineproducersurplusanddescribeitsmeasurement.n1992,PhillipMorrismadeover$5billionfromcigarettesa

3、lesintheUnitedIStates,andmuchmoreworldwide.Morethan60percentofthatprofitcamefromitsMarlborobrand,oneofthemostsuccessfulbrandsevercreated.Indeed,in1992,almostaquarterofallcigarettessoldintheUnitedStateswereMarlboros.Thecompanyhadsuccessfullyimprintedtheimageo

4、ftheruggedandindependentMarlborocowboyinconsumers’minds.Earlyin1993,however,theMarlborocowboyseemedtobecirclinghiswagons.Salesofdiscountcigarettesweregrowingrapidly,reachingamarketshareof30percentin1992—upfromlessthan20percentonlytwoyearsearlier.Duringthesa

5、meperiod,Marlboro’smarketsharehaddroppedfrom26percentto24percent.Combinedwithincreasedrestrictionsandtaxesoncigarettesmokingandageneraldeclineinthenumberofsmokers,thisdropinmarketsharespelledtroublein“MarlboroCountry.”TheMarlboroCowboy293ber00279_c09_293-32

6、3.indd293CONFIRMINGPAGES10/16/073:00:52PM294PartIIEconomicDecisionMakingExecutivesatPhillipMorrisneededtodecidewhattodo.Theyfacedadifficultchoice.Ifthingskeptgoingastheywere,discountcigaretteswerelikelytofurthererodeMarlboro’ssales.Ontheotherhand,PhillipMorr

7、ismightbeabletoregainmarketsharebyreducingprices.Yettakingthatstepwouldbecostly,reducingthecompany’sprofitsoneachpackofcigarettessold.WhichchoicewouldmaximizePhillipMorris’sprofit?(We’llseewhatexecutivesdidlaterinApplication9.2.)Afirmthatunderstandsitstechnolo

8、gyandknowshowtoproduceitsoutputinthemosteconomicalwaypossible—thetopicsofChapters7and8—hastakenthefirststepstowardmaximizingitsprofit.Butotherdecisionsthefirmfacescanhaveanimportantinfluenceonitsprofitabili