Macroeconomics Exam Review 238

Macroeconomics Exam Review 238 - will be induced to choose...

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Unformatted text preview: will be induced to choose an output level which maximizes the profit of the company as a whole. This is the case whether the price is the market price at which the company can buy electricity from external suppliers or the shadow price determined by the need to satisfy the total demand . In this way, the shadow price can be used to decentralize the production decision. 5.30 The Lagrangean for this problem is ( 1 , 2 , 1 , 2 ) = 1 2 1 ( 2 1 + 2 2 2 3) 2 (2 2 1 + 2 2 3) The first-order conditions for stationarity 1 = 2 2 1 1 4 2 1 = 0 2 = 1 4 1 2 2 2 2 = 0 can be written as 2 = 2( 1 + 2 2 ) 1 (5.96) 1 = 2(2 1 + 2 ) 2 (5.97) which must be satisfied along with the complementary slackness conditions 2 1 + 2 2 2 3 1 1 ( 2 1 + 2...
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