Question: A monopoly is facing a downward sloping linear demand given by p=a-Q. Monopoly's unit production cost is given by c>0. Assume that the government imposes

A monopoly is facing a downward sloping linear demand given by p=a-Q. Monopoly's unit production cost is given by c>0. Assume that the government imposes a specific tax of t dollars per unit on each unit of output sold to consumers.

Show that this tax will raise the price paid by consumers by less than t. (I did this part)

a) How is it possible? Is not the case that a monopoly should pass all per unit taxes to consumers?

b) Would your answer change if the market demand curve has a constant elasticity and is given by p=Q-1/2 ?

Please I want answers and explanations for parts a and b (in bold)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!