MONCOMP05 - Econ 464 M. Muniagurria Notes on Monopolistic...

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Econ 464 M. Muniagurria Notes on Monopolistic Competition (I) Representative Consumer. Utility Function: 4 u(q 1 , q 2, . ......... ) = G q i " , where 0 < " <1 i=1 N Income (in labor units) : I = L + 3 B i (q i ), i=1 where B i (q i ) are the profits of a firm producing brand i and N is the number of brands produced. (II) Firms. All potential firms have an identical Increasing Returns to Scale technology: Total Cost in labor units: TC i (q i ) = F + c q i if q i > 0 = 0 if q i =0, where F and c are positive constants. (III) Autarky Equilibrium under Monopolistic Competition. Is a set of prices, number of brands produced and quantity produced of each brand {N*, p i * , q i * I=1, . ..N*} such that: (1) Consumers Maximize utility and Firms maximize profits. (2) There is free entry of firms (i.e., profits are zero ). (3) The labor market clears (i.e., supply of labor (L) equals demand for labor) N* L = 3 ( F + c q i ). i=1
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This note was uploaded on 08/08/2008 for the course ECON 464 taught by Professor Maria during the Spring '08 term at Wisconsin.

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MONCOMP05 - Econ 464 M. Muniagurria Notes on Monopolistic...

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