On the Complex Dynamics of a Bounded Rational Monopolist Model

Purpose – The main purpose of this paper is to investigate the dynamic behavior of a bounded rational monopolist with a general nonlinear demand and quadratic cost functions reflecting diseconomies of scales.Design/methodology/approach – We suppose that locally the monopoly firm uses a gradient mechanism and looks at how the rate of growth of the quantity affects the variation of profits.Findings – We prove that the nonzero steady state is exactly the level of production that maximizes profits, as can be seen in the classic microeconomic theory. However, complex dynamics can arise.Research limitations/implications – For some values of a parameter there is a locally stable equilibrium which is the value that maximizes the profit function. Increasing these values, the equilibrium becomes unstable, through period – doubling bifurcation.Originality/value – The result indicates that a limited reaction of the monopolist to changes in profits can stabilize the quantity produced. On the other hand turbulences in the market are generated by an overreaction