Microeconomics
Microeconomics
11th Edition
ISBN: 9781260507140
Author: David C. Colander
Publisher: McGraw Hill Education
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Chapter 14, Problem 5QE
To determine

The effect of lump-sum tax on monopolists’ price and output decisions.

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Consider a monopolistic business. What sort of demand curve does a monopolist face in contrast to a corporation that is fully competitive? What effects does the monopolist demand curve have on how prices and quantities are set?
Inverse demand for aglets (the plastic wrap on the end of the shoelaces) is given by the expression: P=1-Q/20,000. Further suppose the the marginal cost of producing aglets is constant at $0.01. What are the equilibrium price and quantity in a competitive market? What are the equilibrium price and quantity as well as profit in monopolistic market? What is the deadweight loss?
Explain the concept of the Deadweight Loss? Why is a monopoly firm more likely to be able to earn a profit in the long run compared to a monopolistic competitive firm?
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