ECNS 201 PRINTOUT
ECNS 201 PRINTOUT
8th Edition
ISBN: 9781337096553
Author: Mankiw
Publisher: CENGAGE L
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Chapter 8, Problem 6CQQ
To determine

The impact of taxes on the elasticity of demand and supply.

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Given the following petroleum tax details, calculate the marginal tax rate and explain its significance: Total Revenue: $500 million Cost of Operations: $200 million Tax Rate: 40% Additional Royalty: 5% Profit-Based Tax: 10%
Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.   ​(Hint​: Show that learning by doing lowers its cost in the second​ period.) Part 2 Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash​ equilibrium?
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