If the inverse demand function is p = 120 – Q and the marginal cost is constant at 10, how does charging the monopoly a specific tax of t = 10 per unit affect price and quantity and the welfare of consumers, the monopoly, and society (where society’s welfare includes the tax revenue)? What is the incidence of the tax on consumers?
Answer to relevant QuestionsShow mathematically that a monopoly may raise the price to consumers by more than a specific tax imposed on it. Using a graph, explain why a firm might not want to spend money on advertising, even if such an expenditure would shift the firm’s demand curve to the right.Under what circumstances will a drug company charge more for its drug after its patent expires?On July 12, 2012, Hertz charged $ 126.12 to rent a Nissan Altima for one day in New York City, but only $ 55.49 a day in Miami. Is this price discrimination? Explain.A monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is pA = 100 – QA, and the Japanese inverse demand function is pJ = 80 – 2QJ, where both prices, pA and pJ, are measured in ...
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