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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
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: , () , [ ()
() ⏟] [ (...
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This document was uploaded on 01/19/2014.
- Fall '14
- The Land