2008_02_07_Notes - UP FRONT, 2-7-08 Reading for next time:...

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Unformatted text preview: UP FRONT, 2-7-08 Reading for next time: Perman et al. 142-145 Outline for Today 1. When is the first-order condition in a single- variable optimization problem necessary and sufficient for a global maximum? 2. Public goods 3. Non-rival, excludable goodsefficient provision 4. Rival, non-excludable goods (the tragedy of the commons) When is the first-order condition necessary and sufficient for maximizing net benefits? Consider some activity that produces benefits and costs. Notation a Level of activity B(a) Gross benefits from a C(a) Gross costs from a NB(a) Net benefits of a, NB(a) = B(a) C(a) MB(a) Marginal gross benefits from a MC(a) Marginal gross costs from a The maximization problem Max NB(a) = B(a) C(a) a First-order condition (FOC): MB(a) MC(a) = 0 or MB(a) = MC(a) When is the first-order condition necessary and sufficient for maximizing net benefits? (p. 2) MC and MB cross exactly once, marginal cost from below Net benefits function has exactly one local maximum and it is interior FOC defines global maximum of net benefits (i.e. it is both necessary and sufficient). Characteristics of Private Goods...
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2008_02_07_Notes - UP FRONT, 2-7-08 Reading for next time:...

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