Consider a monopolist who sells a good and faces zero costs. The monopolist faces 2 consumers, 1…
Consider a monopolist who sells a good and faces zero costs. The monopolist faces 2 consumers, 1 and 2. Consumer i buys a unit of the good if the price he pays does not exceed v. Assume that v1 = 1> v2 = v> 0. It shows that for some values ??of v and t, the imposition of a sales tax of t causes the monopolist’s price to increase by more than t. It further shows that if the monopolist faces a linear inverse demand function P (q) = A – Bq and has constant marginal costs c, then the increase in price derived from the tax t is less than t.
