Asked by Tia
Could you please help me with this problem:
Consider an oligopolistic market with two firms. Each of them produces using a cost function given by c(q)=q2.
The aggregate demand in the market is given by 1000−p.
Suppose that, in order to increase production, the government gives the firms a $100 per-unit produced subsidy. The cost of the subsidy is financed with an identical lump-sum tax on consumers.
Suppose that firms are NOT owned by consumers.
Let s denote the size of the per-unit subsidy/tax given to the firms. Let positive values of s denote subsidies, and negative values of s denote taxes.
QUESTION: What is the value of s that maximizes total consumer well-being?
Consider an oligopolistic market with two firms. Each of them produces using a cost function given by c(q)=q2.
The aggregate demand in the market is given by 1000−p.
Suppose that, in order to increase production, the government gives the firms a $100 per-unit produced subsidy. The cost of the subsidy is financed with an identical lump-sum tax on consumers.
Suppose that firms are NOT owned by consumers.
Let s denote the size of the per-unit subsidy/tax given to the firms. Let positive values of s denote subsidies, and negative values of s denote taxes.
QUESTION: What is the value of s that maximizes total consumer well-being?
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