problem to that of picking a price P on the aggregate demand sched ule of the uninformed traders, S(P) The next fact is used extensively throughout the article Fact 1. If X, and X, bave a bivariate normal distribution, wbere ui 42, 0m, 02, and p are the unconditional means, standard deviations, and correlation of the two random variables, then the condition al distribution of x, given that X,= x2 is a normal distribution whose mean is E(X,I x2)=u,+ po, (x2-u2/02, and variance is Var(X1|x2)=(1-p2) It is now possible to analyze the problem of the informed monop alist 2.1 Problem of the informed monopolist Using the well-known properties of exponential utility functions and normal distributions, the monopolist wishes to maximize over P and B the following value function maxv=(1-S+u)(H+e)+(1-B) 0.50(1-S+u)2o (1) subject to her budget constraint [(1-S)-(1-S)]P+[(1-B)-(1-B0)]=0.(2) Since the insider is effectively selecting a price on the aggregate demand function generated by the uniforme optimization problem becomes very simple (2), one elimi- from (1), and then derives the first-o condition for a maximum of (1) with respect to Pas S(P-kp-e)+(S-S)+62S(1-S+t)=0.(3) A more convenient and informative representation of the above equa tion Is P=μp+a(P)+r, a(P)=(S0-5)/S′-62(1-S) r=∈-602 (5) Equation(4) brings into sharp focus a number of insights devel