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

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  • Fausto, Cavalli
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    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.

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    Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 326.

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    Length: 10
    Date of creation: 07 Feb 2016
    Date of revision: 07 Feb 2016
    Handle: RePEc:mib:wpaper:326
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