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Suppose that a monopolistic seller of designer handbags faces the following inverse demand curve: P = 50 – 0.4Q. The seller can produce handbags for a constant marginal and average total cost of $10

Suppose that a monopolistic seller of designer handbags faces the following inverse demand curve: P = 50 – 0.4Q. The seller can produce handbags for a constant marginal and average total cost of $10.

a. Calculate the profit-maximizing price for this seller.

b. Suppose the government levies a $4 tax per unit on sellers of handbags. Calculate how this tax will affect the price the monopolist charges its customers.

c. Who bears the burden of this tax?

Mar 29 2020 View more View Less

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