ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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3. Suppose the inverse demand function is linear: p(q) = 24-q The monopolist's cost
%3D
function is c(g)-0.5g*. Assume the monopolist must charge a uniform price.
(a) Find the optimum monopoly price and quantity. Also calculate the deadweight
loss.
(b) Suppose the governmet can levy a lump-sum tax T (i.e., a fixed amount indepen-
dent of produetion) and an excise tax t per unit of production on the monopolist.
These taxes can be negative, in which case they are subsidies. The proceeds of
these taxes can be transferred to consumers. The monopolist is always free to quit
the market, in which case she does not have to pay any taxes. The government
wants to maximize the ensumer welfare: Pind the optimum vaues of t and
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Transcribed Image Text:3. Suppose the inverse demand function is linear: p(q) = 24-q The monopolist's cost %3D function is c(g)-0.5g*. Assume the monopolist must charge a uniform price. (a) Find the optimum monopoly price and quantity. Also calculate the deadweight loss. (b) Suppose the governmet can levy a lump-sum tax T (i.e., a fixed amount indepen- dent of produetion) and an excise tax t per unit of production on the monopolist. These taxes can be negative, in which case they are subsidies. The proceeds of these taxes can be transferred to consumers. The monopolist is always free to quit the market, in which case she does not have to pay any taxes. The government wants to maximize the ensumer welfare: Pind the optimum vaues of t and
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