{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

monopoly2-ho_003

# monopoly2-ho_003 - Taxation Natural Monopoly Monopoly...

This preview shows pages 1–9. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Taxation Natural Monopoly Monopoly Chapter 24 (cont.) monoply.gif (GIF Image, 289x289 pixels) http://i4.photobu Taxation Natural Monopoly About Midterm 1 • Out of 50: • Mean ≈ 35 • Median = 36 • Standard Deviation ≈ 8.3 • Approximate grade cutoffs: A range: 43 B range: 36 (median) C range: 29 Taxation Natural Monopoly About Midterm 1 5 10 15 20 25 30 20 25 30 35 40 45 50 MT1: % of class scoring < or = to x (and above the next lowest bin) Taxation Natural Monopoly About Midterm 2 • Coming up soon • Quiz 2 in section this week! • Clicker vote: What should MT2 look like? A) Keep the same format: 8 MC + 2 BB B) Cut down on MC and add to BB: 4 MC + 3 BB C) All BB: 4 BB Taxation Natural Monopoly Motivating Questions • What price and quantity does a monopoly choose? • What are the welfare effects of monopoly? • What are the effects of taxes on monopolies? • Is monopoly ever justified/efficient? • Monopoly Behavior: price discrimination Taxation Natural Monopoly Taxation and Monopoly Consider a quantity tax, t per unit • Consumers pay p = P ( y ), but monopoly only gets P ( y )- t • Profit maximization problem: max y ( P ( y )- t ) y- C ( y ) = max y P ( y ) y- C ( y )- ty • Optimal condition: MR ( y ) = MC ( y ) + t Taxation Natural Monopoly Example: Linear Demand • Inverse demand: P ( y ) = 10- y ; cost: C ( y ) = 4 y • Find MR: MR ( y ) = 10- 2 y • Find MC: MC ( y ) = 4 • Optimality condition: MR ( y ) = MC ( y ) + t ⇐⇒ 10- 2 y = 4 + t , • So y t = 6- t 2 = 3- t 2 • Find price by plugging into inverse demand: p t = 10- (3- t 2 ) = 7 + t 2 Notice: with t = 0, p m = 7, so the tax raises the price by p t- p m = t 2 , i.e. less than the full amount of the tax. Taxation Natural Monopoly Monopoly Taxation General (not just for monopoly) question: how much of a tax is...
View Full Document

{[ snackBarMessage ]}

### Page1 / 20

monopoly2-ho_003 - Taxation Natural Monopoly Monopoly...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online