Unformatted text preview: P ** and Q **, in terms of the parameters a , c and t . The new cost function is cQ + tQ = ( c + t ) Q , so the new MC is ( c + t ). Setting this equal to the MR , we get a – 2 Q ** = c + t , so Q ** = ( a – c – t )/2. Substitute into the inverse demand function to obtain P ** = ( a + c + t )/2. (c) How much of the $ t perunit tax was the monopolist able to pass on to consumers in terms of a higher perunit price? ( Hint : Take the derivative of the new price P ** with respect to the tax t .) The derivative is dP **/ dt = ½ , so the monopoly was successful in passing only half the tax to consumers in terms of a higher perunit price....
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 Summer '07
 Dr.ShomuBanerjee
 Economics, Microeconomics, Monopoly, Supply And Demand, Inverse demand function, new cost function, Shomu Banerjee

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