A monopolist faces the inverse demand function P(x) = a - bx and produces with constant marginal cost c. a. Determine the effect on equilibrium price of the introduction of a specific tax of value t.Is the tax over shifted? b. Calculate the effect on profitof the tax. Show that 5% =x, where x is the equillorium output level. Explain this result, . Now replace the specific tax with an ad valorem tax at rate t. Find a pair of taxes that lead to the same level of tax revenue. Which gives a lower price? A monopolist faces the inverse demand function P(x) = a - bx and produces with constant marginal cost c.a. Determine the effect on equilibrium price of the introduction of a specific tax of value t. Is the tax over shifted?b. Calculate the effect on profit of the tax. Show that =x, where x is the equilibrium output level. Explain this result.C. Now replace the specific tax with an ad valorem tax at rate t. Find a pair of taxes that lead to the same level of tax revenue. Which gives a lower price?=-X,dt

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Answered: A monopolist faces the inverse demand…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A monopolist faces the inverse demand function P(x) = a - bx and produces with constant marginal cost c. a. Determine the effect on equilibrium price of the introduction of a specific tax of value t.Is the tax over shifted? b. Calculate the effect on profitof the tax. Show that 5% =x, where x is the equillorium output level. Explain this result, . Now replace the specific tax with an ad valorem tax at rate t. Find a pair of taxes that lead to the same level of tax revenue. Which gives a lower price?

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