ajaz_eco_204_2012_2013_chapter_16_Market_Power

40 eco 204 chapter 16 analysis of firms with market

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: entiate the Lagrangian equation with respect to the parameter. The only parameters so far are and to find the change in due to a small change in a parameter (ceteris paribus) we differentiate respect to the parameter. Ceteris paribus these are: , and with ❸ To find the change in -- and therefore -- due to a small change in a parameter (ceteris paribus) we evaluate the derivative in step ❷ at the optimal solution (which we’ll know after we have solved the PMP): A $1 increase in fixed cost lowers optimal profits by $1 From KT conditions we know that which tells us that a small expansion in the firm’s capacity will never lower profits. 40 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. From KT conditions we know that which tells us that a small increase in the minimum output requirement will never raise profits. Now, back to the PMP: , () , [ () () ⏟] [ (...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online