True or false: Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe products, less pollution, and improved working conditions. L

True or false: Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe products, less pollution, and improved working conditions. L

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter11: Monopoly And Antitrust Policy

Section: Chapter Questions

Problem 4SCQ: As a result of globalization and new information and communications technology, would you expect...

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1. Recall the regulation model where legislators apply regulations to garner votes. Votes are a function of producer utility (UR ) and consumer utility (UC ). The legislator’s vote/utility function is V = V(UR , UC ). If U R = R, and U C = K – R – L, where K is a constant and R and L are the typical monopoly versus competitive market outcome below. Obviously, both U R and U C are affected by the eventual price (P) set by the legislator because both R and L are affected by that price. (a) Now suppose the demand equation is given by P = 100 - Q , and MC = $20. Write R as a function of the price and show that the price that maximizes producer utility is $60. (b) Given the MC and demand equation above, find the maximum possible consumer surplus (hint: this will be when the market is competitive). (c) Now suppose that (in addition to the information in parts d and e), the legislator gets votes according to V (U R, U C ) = 3U R + U C . Find the price that maximizes the legislator’s votes.
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Suppose that the inverse demand curve for paper is p = 200 - Q, the private marginal cost (unregulated competitive market supply) is MCp = 80 + Q, and the marginal harm from gunk is MCg = Q. What is the unregulated competitive equilibrium? What is the social optimum? What specific tax (per unit of output or gunk) results in the social optimum? What is the unregulated monopoly equilibrium? How would you optimally regulate the monopoly? What is the resulting equilibrium?
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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?