2. Consider the following Ramsey pricing Lagrangian exercise. max (B1(91) + B2(q2) – C191 – c292 – F +A {p1(qı)qı + P2(92)q2 – c191 – c292 – F}] 91.92 Bi(qi) represents the area under the demand curve for i, and p¿(q.) is the demand for good i. a) Give the first-order conditions from the above maximization. b) Take the first-order condition for q1, and solve for the Ramsey pricing rule, in termns of the price-cost margin, and the elasticity of demand: Əqı Pı api 91 €1 c) Suppose the market is such that the demands for q1 and q2 are both relatively elastic. Would the associated Ramsey price outcome be less efficient than if both demands were relatively inelastic? Explain.

2. Consider the following Ramsey pricing Lagrangian exercise. max (B1(91) + B2(q2) – C191 – c292 – F +A {p1(qı)qı + P2(92)q2 – c191 – c292 – F}] 91.92 Bi(qi) represents the area under the demand curve for i, and p¿(q.) is the demand for good i. a) Give the first-order conditions from the above maximization. b) Take the first-order condition for q1, and solve for the Ramsey pricing rule, in termns of the price-cost margin, and the elasticity of demand: Əqı Pı api 91 €1 c) Suppose the market is such that the demands for q1 and q2 are both relatively elastic. Would the associated Ramsey price outcome be less efficient than if both demands were relatively inelastic? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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