I am reading Melitz and Ottaviano (2008), but I find it hard to understand some math in the model.

The preference is given by : enter image description here

, which implies a demand function: enter image description here

Then the paper says the "inverse demand function can then be inverted to yield the linear market demand system for these varieties":

enter image description here

But what operations do they take in getting the function $q_i$?

I am very confused on dealing with the $Q_c$ variable, which is defined to be : enter image description here


| improve this question | | | | |

hint: sum equation (2) for all i and use the definition of $Q^c$, we get an expression for $Q^c$. then, substitute this expression into (2) and solve for $q^c$.

| improve this answer | | | | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.