ajaz_eco_204_2012_2013_chapter_16_Market_Power

d

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: e form with ( ) , () , and good 2 as the base good (i.e. ), then is the same as: ∫( ) ( , ) In the introduction to this chapter we argued that a firm with market power will charge a price which is higher than the “competitive price”. Consequently, governments often regulate the monopoly price by forcing the monopolist to charge a lower price. Formally, the government regulates the monopolist’s output to maximize “social welfare” which is defined as: Using the expressions for and ∫( derived above we get: ) We showed earlier that in the short run: ∫( ) ∫( ( , ( , ) ∫( ) ) ) so that: ( ) We now further simplify this expression by re-expressing consumer surplus. _________________________________________________________________________________________________ Digression: Another Expression for Since the representative consumer has monotone preferences (how do we know this?) we see that: Since good 2 is the base good: 59 ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. We can therefore express as: ( ) , ( ( , ) ( ) , { ⏟ ( } , ( But ( ) , ) ) so that: ) ( ) ( ) __________________________________________________________________________________________________ With this expression for we can write social welfare as: ( , ) ( ( ) ) ( ) ( ( ) ) The government regulates the monopolist by having it to produce the output which m...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online