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Unformatted text preview: aximizes social welfare subject to
the constraint that output is less than or equal to capacity. First, some notation:
“monopoly” = Monopolist (mis)behaving as a monopolist
“competition” = Monopolist behaving as as if it is a competitive firm
The government regulates the monopolist by having it to produce the output which maximizes social welfare subject to
the constraint that output is less than or equal to capacity (notice the subscript
() () Before we solve this problem, we need to use another result established in consumer theory:
A Result Established in Consumer Theory
In consumer theory, we solved this quasi-linear UMP:
, () Suppose good 2 is the base good and consider the interior solution (case D) where: ()
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, the marginal utility of good 1 equals its price (a result that you saw in ECO 100 as well).
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This document was uploaded on 01/19/2014.
- Fall '14
- The Land