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Assume you have been hired to advise two different firms,A and B,regarding the price each firm should charge for its product,focusing on the amount each firm should mark up price over marginal cost.While both firms are price setters,the product produced by firm A is extremely unique and enjoys widespread appeal.In contrast,firm B sells a fairly standard product for which there are are several good,but not perfect,substitutes.How would your advice to each firm differ? How does the price elasticity of demand influence your recommendations?
Short Run
A period in economics during which at least one input, such as plant size or capital equipment, is fixed and cannot be changed.
Market Price
Market price is the current price at which a good or service can be bought or sold in the marketplace.
Shut-Down Price
The price point at which a firm's total revenue equals its variable costs, below which the firm should cease operations to minimize losses.
Variable Costs
Costs that vary directly with the level of production or output.
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