No abstract

No abstract

No abstract

This paper reexamines the well-known results of Hwang and Mai (1990), which employed two linear demand functions of equal quantity intercept to examine total output, welfare and locations of a monopoly firm. By imposing equal slope value to both linear demand functions, this paper finds the output theorem by Robinson is preserved, while the welfare theorem by Schmalensee may or may not hold as welfare position hinges on plant locations in a linear market under the free on board (FOB) pricing.

The Averch-Johnson model provides a classic depiction of the behavior of a regulated monopoly firm. It has become one of important models and has found wide applications especially in energy and utility industry. The traditional A-J model assumes that regulated or fair rate of return is exogenous to but not affected by the market cost of capital, therefore, demand for capital (hence output) is not responsive to the change in the cost of capital, a result that contradicts well-established phenomenon in business world. In this paper, we show that the capital investment could indeed respond to a change in the cost of capital if such a change affects the fair rate of return. Consequently, the traditional Averch-Johnson model is only a special case of a more general outcome.