ajaz_eco_204_2012_2013_chapter_16_Market_Power

Since neither case b or c have occurred the solution

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Unformatted text preview: e is found by setting , Thus: ( ) The PMP becomes: ⏟ ⏟ () [, ⏟ ⏟ ⏟ ⏟ , ⏟ ⏟ Now we need to check the conditions for each of the following cases: When Case A Impossible Case B () () Monopoly Profit Maximization Problem Case C Case D () () When () When neither Case B or C occur ⏟ found by () () () Now: , , ( , ) ⏟ 49 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. Let’s check if/when Case B will occur: () ( , ) ( , ) , () Since () ( ) PDS will not produce at capacity. Let’s check if Case C can occur: () ( , ) , () Since () ( ) PDS will produce a positive output. Since neither case B or C have occurred the solution must be Case D. To find the output set: ( , ) , ( ) Now: , ( , ) Optimal profits are: ⏟ ⏟ ( ) , ⏟ __________________________________________________________________________________________________ Example 2: Suppose a monopolist has a linear demand curve: Assume that , and that the firm has constant returns: Assume Solve the PMP: ⏟ The PM...
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This document was uploaded on 01/19/2014.

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