Assume that there is only one producer (monopolist), who faces the demand curve, P(Q)= 56-
8Q, whose total cost curve is C(Q)= 6Q^2-10. 

If the producer is a profit maximizer:
(a) Determine the profit-maximizing output of the monopolist and the associated price.
(b) Assume now that the government levies a per-unit tax of t on the producer in order to reduce the use of tobacco. What effect does this have on the profit maximizing price and output?
(c) Alternatively, assume the government levies a sales tax of 50% on the producer. What effect does this have on the profit-maximizing price and output?
(d) If the per-unit tax is set at 7, and the sales tax is set at 50%, which tax is more effective?

Answer rating: 100% (QA)

a Since the producer is a profitmaximizing monopolist the equilibri... View the full answer