Consider a non-competitive model with flexible prices. Now assume that a productivity shock can increase output and that higher output leads to higher price elasticity of demand for the intermediate products. What does shocking the demand elasticity means for the monopolist’s pricing condition? Can this give rise to pro-cyclical real marginal cost?

Consider a non-competitive model with flexible prices. Now assume that a productivity shock can increase output and that higher output leads to higher price elasticity of demand for the intermediate products. What does shocking the demand elasticity means for the monopolist’s pricing condition? Can this give rise to pro-cyclical real marginal cost?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter16: Government Regulation

Section: Chapter Questions

Problem 4E

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