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Consider a setting of two periods, t = 1,2. The good produced and used during period 1 may be used again in period 2, with
Consider a setting of two periods, t = 1,2. The good produced and used during period 1 may be used again in period 2, with no depreciation. For simplicity, assume that after period 2, the good becomes obsolete (is replaced by a new product), and hence there is no demand for it. Further assume that the cost of producing this good is zero, so that the monopolist can produce as much as he wishes in each period without incurring 1 any cost. The monopolist and consumers have discount factor 6 = m, where r is the interest rate. The consumption (utilization) demand for this good in each period is 0(1)) = 1 p. The monopolist has two options. One is to lease the good, while the other is to sell in each period. In the latter case, a resale market exists in which the good bought during the rst period may be resold in the second period. In the second period, the Owners of the good may lease it to other consumers if they wish. Prove that the monopolist prefers leasing
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