1. A profit maximizing monopolist has the following demand and cost functions: P =80–20 TC = Q² +8Q+20 The government is considering imposing an excise tax on the production and sale of the product. The tax increases the variable cost for the firm. For example, if the tax is $2 per unit and the firm produces 10 units then the firm needs to pay $2x10 =$20 total tax to the government. This is added to the firm's cost of production. The government's objective is to generate the maximum possible tax revenue from the monopolist by imposing an excise tax on the production and sale of the product. Drawing a simple diagram describe this as a sequential game. Considering tax rate (t) as the continuous strategy for the government and the output as the continuous strategy for the firm, determine the subgame perfect Nash equilibrium and calculate the optimal tax rate and the optimal level of output. Also, calculate the price charged by the firm. Determine the payoffs in the game when the government's payoff is the tax revenue

1. A profit maximizing monopolist has the following demand and cost functions: P =80–20 TC = Q² +8Q+20 The government is considering imposing an excise tax on the production and sale of the product. The tax increases the variable cost for the firm. For example, if the tax is $2 per unit and the firm produces 10 units then the firm needs to pay $2x10 =$20 total tax to the government. This is added to the firm's cost of production. The government's objective is to generate the maximum possible tax revenue from the monopolist by imposing an excise tax on the production and sale of the product. Drawing a simple diagram describe this as a sequential game. Considering tax rate (t) as the continuous strategy for the government and the output as the continuous strategy for the firm, determine the subgame perfect Nash equilibrium and calculate the optimal tax rate and the optimal level of output. Also, calculate the price charged by the firm. Determine the payoffs in the game when the government's payoff is the tax revenue

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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