ajaz_eco_204_2012_2013_chapter_16_Market_Power

Eco 204 s ajaz hussain do not distribute that is case

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Unformatted text preview: ____________________________________________________________________________ The government regulates the monopolist by having it produce the output which maximizes social welfare subject to the constraint that output is less than or equal to capacity (notice the subscript ): () () () () The Lagrangian equation is: [ The FOC and KT conditions are: () , () , [ The KT cases are: Case A Case B Check if/when Check if/when Case A: The FOC becomes: () () But we saw that () () ⏟ () so that: () 61 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. That is, case A emerges if the quantity where is less than or equal to capacity. See graphs below for examples (for convenience we show linear demand and constant returns): Regulated Monopolist Unregulated Monopolist Demand Demand Notice that: Case B: The FOC becomes: () () () () But we saw that () () () so that: Case B occurs whenever: () () () () 62 ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) U...
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