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Unformatted text preview: tribute. Case B
Check when/if ⏟? Check when/if This says the company should produce at capacity (which is assumed to be strictly positive). Therefore we know that
To see when Case B arises we need to see when
in the FOC: ⏟ ⏟ ()
() () This says that if the marginal revenue at capacity is greater than or equal to 0 then the firm should produce at 100%
capacity. Intuitively, this happens when capacity is less than or equal to the unconstrained solution as shown in the
following example: Case B: when
Point () Unconstrained
solution Demand In this example, if the firm had ample capacity it would produce where
. However, since capacity is less than the
, the firm produces at 100% capacity. How would we have known that? By checking if
as long as this is true, it must be that capacity is less than or equal to the unconstrained solution (make sure you
Now that we know what Case B is and when it’ll happen, let’s take another look at the FOC: 25
ECO 204 Chapter 16: Analysis o...
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This document was uploaded on 01/19/2014.
- Fall '14
- The Land