ajaz_eco_204_2012_2013_chapter_16_Market_Power

What about the regulated price it can be any price

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Unformatted text preview: niversity of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Case B emerges if the price at capacity exceeds the marginal cost at capacity. In this case the monopolist will produce at capacity. By contradiction, Case A occurs whenever ( ) ( ) or alternatively when the output where exceeds capacity. See graphs below for examples (for convenience we show linear demand and constant returns): Regulated Monopolist Unregulated Monopolist Demand Demand ⏟ ⏟ Notice that the regulator has specified the quantity: the “regulated” output is identical to the “unregulated” output. What about the “regulated” price? It can be any price between and Regulated Monopolist Unregulated Monopolist Regulation price can be anywhere here Demand Demand ⏟ ⏟ 63 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. Regardless of which price the regulator chooses, the total social welfare will be the same, albeit with consumers and producers getting different shares of the welfare pie. For example: Example 1 Regulated Monopolist Example 2 Regulated Monopolist Demand Demand ⏟ ⏟ Notice that as the regulated price app...
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