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Equilibrium Models in EconomicsPurposes and Critical Limitations$
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Lawrence A. Boland

Print publication date: 2017

Print ISBN-13: 9780190274320

Published to Oxford Scholarship Online: May 2017

DOI: 10.1093/acprof:oso/9780190274320.001.0001

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Does general equilibrium attainment imply universal maximization?

Does general equilibrium attainment imply universal maximization?

Chapter:
(p.35) Chapter 3 Does general equilibrium attainment imply universal maximization?
Source:
Equilibrium Models in Economics
Author(s):

Lawrence A. Boland

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780190274320.003.0004

This chapter examines Robert Clower’s 1959 article about the knowledge requirements for an equilibrium model of the supplier, and asks whether universal maximization is always an implication of equilibrium attainment. Clower’s article challenges Arrow’s suggestion of using an imperfect competitor. But the equilibrium reached by an ignorant monopolist may be an equilibrium state but unlike general equilibrium models, the equilibrium that Clower’s monopolist reaches is sub-optimal. The main reason for it being a sub-optimum is that the monopolist may not be maximizing profit even though the monopolist thinks so. The reason for his monopolist reaching a sub-optimal state is that the monopolist does not know the market’s demand curve and so must make possibly false assumptions about it.

Keywords:   universal maximization, equilibrium attainment, sub-optimal equilibrium, ignorant monopolist, Robert Clower

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