B. Suppose the monopoly has marginal costs MC 5 x and faces the demand curve p 5 90 2 x as in exercise 23.1.

a. If you have not already done so, calculate the profit-maximizing supply point 1x M, p M 2 in the absence of a tax.

b. Suppose the government introduces the tax described in A(b). What is the new profit-maximizing output level? How much will monopolists charge?

c. Suppose the government instead imposed the tax described in A(d). Set up the monopolist’s profit maximization problem and solve it.

d. Compare your answers to

(b) and (c). Is the economic incidence of the tax affected by the statutory incidence?

e. What fraction of the tax do monopolists pass on to consumers when monopolists are statutorily taxed? What fraction of the tax do consumers pass on to monopolists when consumers are statutorily taxed?