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A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist...

A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist faces a cost curve: C(Q) = 5Q. The government is seeking ways to collect tax revenue from the monopolist by imposing an ad valorem tax of 20% on the monopolist.

a. What price and quantity does the monopolist choose (post-tax) and how much revenue does the government generate from the tax? Does the monopolist earn any profits in this case? If so, how much is it? Show all the steps for full credit.

b. Draw an approximate graph to depict the before-tax and after-tax price – quantity combination (in one graph).

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