In this paper, we analyze the equilibrium effects of a monopolist with bounded rationality. Assuming that the entire (monotonic) demand function is unknown, she employs a rule of thumb to produce a quantity that guarantees the largest profits. The steady state of the map is equal to the level of price that maximizes profits, as can be seen in the classical microeconomic theories. However, complex dynamics can arise, especially when the reaction coefficient to variation in profits is high
Naimzada, A., Ricchiuti, G. (2008). Complex dynamics in a monopoly with a rule of thumb. APPLIED MATHEMATICS AND COMPUTATION, 203(2), 921-925 [10.1016/j.amc.2008.04.020].
Complex dynamics in a monopoly with a rule of thumb
NAIMZADA, AHMAD KABIR;
2008
Abstract
In this paper, we analyze the equilibrium effects of a monopolist with bounded rationality. Assuming that the entire (monotonic) demand function is unknown, she employs a rule of thumb to produce a quantity that guarantees the largest profits. The steady state of the map is equal to the level of price that maximizes profits, as can be seen in the classical microeconomic theories. However, complex dynamics can arise, especially when the reaction coefficient to variation in profits is high
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