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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
2
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education