Consider a market with an aggregate inverse demand function given by p(q) = a - mq. Suppose that there is a monopolist that cannot engage in price discrimination and that has a cost function given by c (q) = sq. The monopoly firm is NOT owned by any of the consumers in the market (e.g., it is owned by a foreign entity). Suppose that the government introduces a per-unit tax of size 7 on the monopolist, and that it returns the revenue raised by the tax using an equal lump-sum transfer to the consumers in the market. QUESTION: What is the formula for the value of 7 maximizes the total well-being of consumers in the market?

Consider a market with an aggregate inverse demand function given by p(q) = a - mq. Suppose that there is a monopolist that cannot engage in price discrimination and that has a cost function given by c (q) = sq. The monopoly firm is NOT owned by any of the consumers in the market (e.g., it is owned by a foreign entity). Suppose that the government introduces a per-unit tax of size 7 on the monopolist, and that it returns the revenue raised by the tax using an equal lump-sum transfer to the consumers in the market. QUESTION: What is the formula for the value of 7 maximizes the total well-being of consumers in the market?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a market with an aggregate inverse demand function given by pº (q) = a − - mq. Suppose that there is a
monopolist that cannot engage in price discrimination and that has a cost function given by c (q) = sq.
The monopoly firm is NOT owned by any of the consumers in the market (e.g., it is owned by a foreign entity).
Suppose that the government introduces a per-unit tax of size 7 on the monopolist, and that it returns the revenue raised by
the tax using an equal lump-sum transfer to the consumers in the market.
QUESTION: What is the formula for the value of maximizes the total well-being of consumers in the market?
T

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