Lecture 21-Review Applications

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1 Aug 2010
School
Department
Course
Professor
Q1
Q0
P0
P1
DD
MR
$2
P0 falls to P1
Q0 falls to Q1
Tuesday, December 8th, 2009. Review: Applications
A monopolist is earning economic profits.
What happens to:
(1) Price
(2) Quantity
If Government removes $2 per unit excise tax?
Key: MC shifts down by $2
Price increase from P0 to P1
Output declines from Q0 to Q1
Why?
Q1
P1
DD
Q0
P0
Q0
SS
DD
SS1
SS
P0
NO CHANGE
Why?
Same no. of firms producing same
product
D[
MC
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