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Quiz 20 Monopoly2 - t per unit Write down the new cost...

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Shomu Banerjee ECON 201 MONOPOLY WITH TAX QUIZ A monopolist producer faces the (inverse) demand curve given by P = a - Q , where P is the price charged and Q is the quantity demanded. The total cost of producing the good is C ( Q ) = cQ ; the marginal cost is MC = c . (a) Find the price and quantity P * and Q * that maximize the monopolist’s profit in terms of the parameters a and c . (b) Suppose the government decides to tax the monopolist's output at a rate of $
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Unformatted text preview: t per unit. Write down the new cost function for the monopoly and find the new profit-maximizing price and output combination, P ** and Q **, in terms of the parameters a , c and t . (c) How much of the $ t per-unit tax was the monopolist able to pass on to consumers in terms of a higher per-unit price? ( Hint : Take the derivative of the new price P ** with respect to the tax t .)...
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