Show that for a monopolist with a constant marginal cost and facing a linear demand curve, if a specific tax is imposed on the monopolist, the tax burden is shared equally between the monopolist and the consumers
What will be an ideal response?
A monopolist facing demand p = a - bQ and marginal cost c chooses a price and quantity:
p = (a + c)/2
With a tax of t, the monopolist's costs are essentially c + t, making the price:
p = (a + c)/2 + t/2
The price will rise by half of the tax.
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Refer to the diagram. Which of the following is a positive statement?
A. A point inside the production possibilities curve is superior to a point on the curve because
the former requires less work effort.
B. Because any society should stress economic growth as its major goal, point D is superior
to point C.
C. Point B is preferable to point C because the ultimate goal of economic activity is to
maximize consumption.
D. Given its resources and technology, this society is incapable of simultaneously producing 3
units of tractors and 15 units of bread.