Question

If the inverse demand curve P = 180 – Q and the marginal cost is constant at ​$20​, how does charging the monopoly a specific tax of ​$14 per unit affect the monopoly optimum 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 1

Answer:

$65

Explanation:

The inverse demand function is as follows:

P = 120 - Q

TR = 120Q - Q²

$MR = \frac{dTR}{dQ}$

MR = 120 - 2Q

The marginal cost is constant at $10.

The profit maximizing point is where MR = MC

MR = MC

102 - 2Q = 10

Q = 55

P = 120 - Q = $65

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