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Working paper

On The Social Efficiency In Monopolistic Competition Models

Pospelov I. G., Radionov S.
  We consider standard monopolistic competition models with aggregate consumer's preferences defined by two well-known classes of utility functions | the Kimball utility function and the variable elasticity of substitution utility function. It is known that market equilibrium is efficient only for the special case when utility function has a constant elasticity of substitution, but we find that in both cases a special tax on firms' output may be introduced such that market equilibrium becomes efficient