Problem 14 A monopolist has an inversedemand curve given by p(y) = 12-y and a costcurve given by c(y) = y. (b) What is thedeadweight loss of monopoly? (c) Suppose thegovernment decides to put a tax on thismonopolist so that for each unit it sells it has topay the government $2. What will be its outputunder this form of taxation? (d) What will be theextra deadweight loss due to the tax? (e)Suppose now that the government puts a lumpsum tax of $10 on the profits of the monopolist.What will be its output?

Demand function of a Monopoly : p = 12 - y Cost function : c = y

Problem 14 A monopolist has an inverse demand curve given by p(y) = 12-y and a cost curve given by c(y) = y. (b) What is the deadweight loss of monopoly? (c) Suppose the government decides to put a tax on this monopolist so that for each unit it sells it has to

Problem 14 A monopolist has an inverse demand curve given by p(y) = 12-y and a cost curve given by c(y) = y. (b) What is the deadweight loss of monopoly? (c) Suppose the government decides to put a tax on this monopolist so that for each unit it sells it has to

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 supplies an identical good in both countries. The inverse demand curve of Country A is P = 12 – Q and that of Country B is P = 22 – 2Q. Suppose the monopolist has plants in two countries and all plants have a constant marginal cost of $2. (a) Suppose the tariff is so high that there is no trade between the two countries, what price should the monopolist charge in each country? What is its total profit? (b) After the two countries sign a trade agreement, the tariff becomes zero. Now the good the monopolist supplies can be transported from one country to the other with a cost of one dollar per unit. How will the monopolist’s profit change if it does NOT change its pricing strategy? (c) How should the monopolist change its pricing strategy to maximize its profit?
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