A model of monopoly with lags in the planning and production activity

Fausto, Cavalli

No 326, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: In this note, departing from the traditional static and fully rational economic agent setting, I study a dynamic model of a boundedly rational monopolist who, in a partially known environment, follows a rule of thumb learning process. Instead of considering the classical differential model with smooth argument, the proposed dynamic model consists of a piecewise constant argument differential equation, in order to take into account the more realistic assumption of a lag between the learning activity and the output production activity. It is shown how this simple first order differential equation can be rephrased into a nonlinear difference equation which, differently from the classical model with smooth argument, can exhibit complex behaviors. The aim of the paper is to illustrate, from a methodological point of view, the potential applications and the dynamical effects of piecewise constant argument differential equations in economics.

Keywords: Monopoly; lags; bounded rationality; pie ewise onstant argument differential equation; complex dynamics. (search for similar items in EconPapers)
JEL-codes: C02 C62 C63 C65 D42 L12 (search for similar items in EconPapers)
Pages: 10
Date: 2016-02-07, Revised 2016-02-07
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