economics: microeconomics

label Economics
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Suppose the monopoly has marginal costs MC = 2q and faces the demand curve p= 90 - q. A politician suggests to impose a per-unit tax of $1 on the monopolist. Calculate the monopoly price, output, profit, and deadweight loss in the absence and presence of the tax. Represent the problem graphically. What is your conclusion?

Oct 23rd, 2015

Thank you for the opportunity to help you with your question!

MC = P 

2q = 90-q 

q = 90/3 =30 

p =  60 

profit =  (90-30)*30 - 30*30 = 900 

with tax 

2q=90-q -1 

q = 89/3 

p = (90-89/3) = 181/3

profit = 181/3*89/3 - 89/3*89/3 -89/3 

=880.11

Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 23rd, 2015

thank you so much James! I really appreciate your help. Could you please help me figure out how to calculate the deadweight loss if you know how to. Thank you again

Oct 23rd, 2015

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Oct 23rd, 2015
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Oct 23rd, 2015
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