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Appendix: Cocaine Markets and Supply-Control Activities
Pages 45-48

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From page 45...
... With this elaboration, it is possible to investigate the sensitivity of the RAND findings to plausible variations in the shape of the average cost curve. BASIC ELEMENTS OF THE MODEL The basic elements of the model include a demand function specifying the quantity of cocaine demanded at any given price, a cost function specifying the cost of producing any given quantity of cocaine, and a market-clearing mechanism explaining how consumers and producers interact to determine the equilibrium quantity and price of cocaine.
From page 46...
... Let Q be the equilibrium quantity of cocaine that escapes seizure and let P be the equilibrium price. As in the RAND study, assume that equilibrium price equals the average cost of cocaine production, measured as total cost divided by the amount of cocaine that escapes seizure.
From page 47...
... Henceforth, we assume that b is in the range -1 < b < 0, as is done in the RAND study. HOW COCAINE CONSUMPTION VARIES WITH SEIZURES Equation (8)
From page 48...
... , the parameter d is set to 1 to produce the two downward sloping average cost curves and to 4 to produce the two upward sloping average cost curves. These values for d are selected to illustrate the sensitivity of predictions to the assumed shape of the average cost curve.

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