Suppose that a market's inverse demand function is P = 100 - 0.2Q. P is the price, and Q is the unit of goods.
The cost function of the market's monopolist is C(Q) = 20Q + 100.
a) What is the monopolist's marginal cost?
b) What is the monopolist's profit maximizing quantity (Q*), and associated price (P*), profit, consumer
welfare, producer welfare, and DWL?
c) The government imposes $20 per unit tax on the firm. Repeat part b).
d) What tax rate, t, would achieve the same profit maximizing output as in part c)? What are the associated
price the consumers pay (including the tax), price the producers receive (excluding the tax), Profit, CS, PS,
DWL, and the tax revenue?
e) Which tax revenue is greater? Per unit tax from part c) or ad valorem tax from part d)?
