econ100_winter2010_lecture15_topost

econ100_winter2010_lecture15_topost - Monopolist and Taxes...

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Monopolist and Taxes Monopolist can be taxed, just like competitive firms Taxes shift effective marginal cost curve, and will change output, price decisions
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Tax on Monopolists’ Sales P Q MC D MR MC + t P m Q m
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Tax on Monopolists’ Sales P Q MC D MR MC + t P m Q m P m(at) t P m(at) - t
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Tax on Monopolists’ Sales P Q MC D MR MC + t P m Q m P m(at) t P m(at) - t Monopolist got P m before tax, P m(at )-t after tax Consumer paid P m before tax, P m(at) after tax
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Tax on Consumers of Monopoly Goods P Q MC D MR P m Q m P m(at)’ + t t P m(at) Monopolist got P m before tax, P m(at )- after tax Consumer paid P m before tax, P m(at)’ +t after tax True incidence of tax (burden) is unchanged
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What is “supply curve” for monopolist? With monopoly behavior, there is no one-to- one relationship between Price and quantity supplied To see: Note that, under perfect competition, shifting the demand curve will trace out the market supply curve as different p*,q* combinations Not so for monopolist
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Perfect Competition Shift Demand Curve P Q S D1 MR P m Q m D2 D3
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Monopoly Profit Max Shift Demand Curve P Q MC D1 MR1 P m2 =P m1 Q m1 D2 MR2 Q m2 Different quantity after demand shift, but same price
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Monopoly Profit Max Shift Demand Curve P Q MC D1 MR1 P m1 Q m1 D2 MR2 =Q m2 Same quantity after demand shift, but different price
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Can monopolist increase profits with alternative pricing? Why does monopolist restrict output to less than perfectly competitive level?
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econ100_winter2010_lecture15_topost - Monopolist and Taxes...

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