Assume that there is only one producer (monopolist), who faces the demand curve, P(Q)= 56- 8Q, whose
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Question:
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?
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