Monopolist profit maximizing price and rate of output

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We will examine the effect of a sales tax on a monopolist's profit maximizing price and rate of output. Assume that the monopolist faces a linear inverse demand curve given by p(y)=a-by, where a>0 and b>0, and a quadratic total cost function c(.) given by c(y)=(1/2)ky^2, where k>0. The monopolist is also assumed to pay a fraction s, 0<s<1, of its total sales revenue in taxes to the government.

a) Set up the monopolists profit maximization problem in the presence of the sales tax, and find the profit maximizing rate of output say y=y^s(a,b,k,s)

b) Find the monopolists optimal price, say p=p^s(a,b,k,s)

Reference no: EM131197536

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