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Unformatted text preview: argument’s sake, suppose that capacity is 105% of maximum market size. To find maximum market size, re-arrange
the demand curve to get:
The maximum market size is found by setting
( ) Summary of a monopolist regulated by a government which chooses output to maximize social welfare
If output where is less than or equal to capacity or
if ( )
() “Force” the monopolist to produce where
“Force” the monopolist to charge If output where
is greater than or equal to
capacity or if ( )
“Force” the monopolist to produce where for all units “Force” the monopolist to charge a price between
the monopoly price. However, most texts set and Let’s check if case A is the solution. Set: ,
This is in fact less than the capacity. Therefore, the regulated price and output are: __________________________________________________________________________________________________
Example 2: Prestige Data Services’ Commercial Data Services:
● Hours ● = $/hour ,
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....
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This document was uploaded on 01/19/2014.
- Fall '14
- The Land