Suppose the inverse demand function is linear: p(q) = a - Bq. The monopolist's cost function is c(q) = 8q2. Assume the monopolist must charge a uniform price. (a) Find the optimum monopoly price and quantity. Also calculate the deadweight loss. (b) Suppose the government can levy a lump-sum tax (i.e., a fixed amount independent of production) and an excise tax t per unit of production on the monopolist. These taxes can be negative, in which case they are subsidies. The proceeds of these taxes can be transferred to consumers. The monopolist is always free to quit the market, in which case she does not have to pay any taxes. The government wants to maximize the consumer welfare. Find the optimum values of t and T.

Suppose the inverse demand function is linear: p(q) = a - Bq. The monopolist's cost function is c(q) = 8q2. Assume the monopolist must charge a uniform price. (a) Find the optimum monopoly price and quantity. Also calculate the deadweight loss. (b) Suppose the government can levy a lump-sum tax (i.e., a fixed amount independent of production) and an excise tax t per unit of production on the monopolist. These taxes can be negative, in which case they are subsidies. The proceeds of these taxes can be transferred to consumers. The monopolist is always free to quit the market, in which case she does not have to pay any taxes. The government wants to maximize the consumer welfare. Find the optimum values of t and T.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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