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There is a single monopolist whose technology exhibits constant marginal costs. The market demand curve exhibits constant elasticity. There is an ad-valorem tax on the
There is a single monopolist whose technology exhibits constant marginal costs. The market demand curve exhibits constant elasticity. There is an ad-valorem tax on the price of the good sold so that when the consumer pays , the monopolist receives a price = (1 ). The taxing authority is considering changing the tax system to a tax on output so that now we will have = + . Calculate the output tax that is equivalent to the ad valorem tax in the sense that the final price facing the consumer is same under either scheme
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