a) What is the ad valorem tax which will generate the same quantity distortion? b) What is the tax revenue from the ad valorem tax calculated in part a? c) If the government’s objective is to reduce deadweight loss, should they implement a tax?

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.6P
icon
Related questions
Question
100%


4. Suppose this market has a single monopoly seller facing the entire market demand Q= 120 – 2P and cost curve C(Q)= 10Q. Now, Suppose the government imposes a unit tax of 4.

a) What is the ad valorem tax which will generate the same quantity distortion?

b) What is the tax revenue from the ad valorem tax calculated in part a?

c) If the government’s objective is to reduce deadweight loss, should they implement a tax?

d) If the government is going to implement either a unit tax of 4 or the ad valorem tax you calculated in part a., which one should they chose for the highest tax revenue?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 6 steps

Blurred answer
Knowledge Booster
Government Policy
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Micro Economics For Today
Micro Economics For Today
Economics
ISBN:
9781337613064
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Economics For Today
Economics For Today
Economics
ISBN:
9781337613040
Author:
Tucker
Publisher:
Cengage Learning
Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
Economics
ISBN:
9781285635101
Author:
MCEACHERN
Publisher:
Cengage