Natural monopoly with constant marginal cost

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A government notices that a natural monopoly with constant marginal cost has emerged in a particular market. The government does not know the general shape of the demand curve and is considering levying a $1 per-unit tax on the monopolist. One concerned citizen objects, claiming that the tax will result in consumers paying $1.50 more per unit. Should the government dismiss this citizen's concern as unreasonable? Does your answer change if the market is perfectly competitive? Explain.

Reference no: EM131846262

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