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Consider our class 1.i'ersion of Romer's varieties innovation model, with the regular aggregate production functiom Y3 = L} _ Ell: 1Kiit: and all other assumptions
Consider our class 1.i'ersion of Romer's varieties innovation model, with the regular aggregate production functiom Y3 = L} _ \"Ell: 1Kiit: and all other assumptions apply. 1. Suppose that the market power of all patent holders (over the different specialized machines) is limited: the price they can charge is limited to so the price they is regulated l 1 so that p; s: E (recall that E is the non-regulated profit maximizing monopolistic price) Show that this price ceiling policy may enhance or hinder growth= depending on the parameters of the model and the degree of price regulation. First= think about how lower machine prices affect demand for machines. Then check how such change will affect the growth by looking at its effects on saying and on the allocation of investment
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