1. Consider a monopolistic firm operating in three different markets. Its revenue and cost functions: R = R₁ (Q₁) + R₂(Q2) + R3(Q3) C = C(Q) where Q = Q₁ + Q₂ + Q3- a. Define the profit maximization problem of the firm. b. Present the first-order condition (set of equations). c. Provide an economic interpretation to the first order condition. In particular, connect marginal revenues and demand elasticities to explain under what conditions the firm will charge a higher price. d. Present the Hessian of the firm's objective function. e. Analyze the second-order sufficient condition. f. Assume each of the revenue functions is concave and convex costs. Would this structure secure the second-order condition? Explain.
1. Consider a monopolistic firm operating in three different markets. Its revenue and cost functions: R = R₁ (Q₁) + R₂(Q2) + R3(Q3) C = C(Q) where Q = Q₁ + Q₂ + Q3- a. Define the profit maximization problem of the firm. b. Present the first-order condition (set of equations). c. Provide an economic interpretation to the first order condition. In particular, connect marginal revenues and demand elasticities to explain under what conditions the firm will charge a higher price. d. Present the Hessian of the firm's objective function. e. Analyze the second-order sufficient condition. f. Assume each of the revenue functions is concave and convex costs. Would this structure secure the second-order condition? Explain.
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: Monopolistic Competition
Section: Chapter Questions
Problem 4PA
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