Consider a monopolist with constant marginal costs, m, that faces a market demand curve with a constant own-price elas
Posted: Thu Apr 28, 2022 11:39 am
Consider a monopolist with constant marginal costs, m,
that faces a market demand curve with a constant own-price
elastiticity
ε.
If the government applies a specific tax, t, to
the monopolist, then the change in the price charged
to consumers, in terms of
ε
is:
ΔP=t/(1+1/ε)
Suppose the constant own-price elasticity of market demand
is
−3.79.
Then a
$1.00
specific tax will impose a tax incidence on consumers that is
equal to:
A.
41.45%
B.
163.01%
C.
135.84%
D.
74.35%
that faces a market demand curve with a constant own-price
elastiticity
ε.
If the government applies a specific tax, t, to
the monopolist, then the change in the price charged
to consumers, in terms of
ε
is:
ΔP=t/(1+1/ε)
Suppose the constant own-price elasticity of market demand
is
−3.79.
Then a
$1.00
specific tax will impose a tax incidence on consumers that is
equal to:
A.
41.45%
B.
163.01%
C.
135.84%
D.
74.35%