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GREG HUTKO: Today we're going
to do Fall 2010, P Set Six,

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00:00:26,770 --> 00:00:28,640
Problem Number Four.

10
00:00:28,640 --> 00:00:30,910
And for this problem we're going
to shift away from what

11
00:00:30,910 --> 00:00:33,220
we've usually been talking
about, where we're dealing

12
00:00:33,220 --> 00:00:36,000
with a straight equilibrium,
setting the demand curve equal

13
00:00:36,000 --> 00:00:37,440
to the supply curve.

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00:00:37,440 --> 00:00:39,590
And now we're going to think
about what happens when the

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00:00:39,590 --> 00:00:41,400
supplier has market power.

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00:00:41,400 --> 00:00:43,670
When they're the only competitor
in the market, and

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00:00:43,670 --> 00:00:46,560
they can decide how much
quantity they want to produce.

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00:00:46,560 --> 00:00:49,550
And they don't have to worry
about other producers coming

19
00:00:49,550 --> 00:00:51,160
in and producing.

20
00:00:51,160 --> 00:00:52,050
Problem Number Four--

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00:00:52,050 --> 00:00:53,430
I'll read through Part A--

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00:00:53,430 --> 00:00:55,790
states, "A monopolist
firm faces the

23
00:00:55,790 --> 00:00:57,550
following cost curve.

24
00:00:57,550 --> 00:01:01,520
The cost equal Q squared plus
15, where Q is the output

25
00:01:01,520 --> 00:01:05,420
produced, the demand for its
product is given by P equals

26
00:01:05,420 --> 00:01:09,050
24 minus Q. We need to calculate
the non-price

27
00:01:09,050 --> 00:01:12,750
discriminating consumer surplus,
the producer surplus,

28
00:01:12,750 --> 00:01:17,210
and the deadweight loss
associated with the monopoly."

29
00:01:17,210 --> 00:01:19,620
Now, what this problem's really
going to look like-- we

30
00:01:19,620 --> 00:01:24,030
can think about it starting
with this graph.

31
00:01:24,030 --> 00:01:26,920
Is, instead of producing output
to the point of the

32
00:01:26,920 --> 00:01:30,490
equilibrium right here, the
supplier can actually make

33
00:01:30,490 --> 00:01:35,450
more money by saying I'm only
going to produce to a point

34
00:01:35,450 --> 00:01:40,570
right here, so this is what
we're looking for.

35
00:01:40,570 --> 00:01:43,470
We're wondering how much is the
supplier actually going to

36
00:01:43,470 --> 00:01:46,900
constrict the supply
in the market.

37
00:01:46,900 --> 00:01:52,780
And when they constrict this
supply, what happens is this

38
00:01:52,780 --> 00:01:55,790
small triangle right here
becomes the deadweight loss.

39
00:01:55,790 --> 00:01:59,290
This is potential surplus that
would have existed when this

40
00:01:59,290 --> 00:02:03,210
whole big triangle was
the consumer surplus

41
00:02:03,210 --> 00:02:04,760
plus producer surplus.

42
00:02:04,760 --> 00:02:06,830
So now nobody's getting
that triangle.

43
00:02:06,830 --> 00:02:10,625
But the producer surplus is much
bigger than it would have

44
00:02:10,625 --> 00:02:14,080
been when it was just the space
below the price level to

45
00:02:14,080 --> 00:02:14,800
the supply curve.

46
00:02:14,800 --> 00:02:16,870
So the producers
are better off.

47
00:02:16,870 --> 00:02:19,550
The consumers are going
to be worse off.

48
00:02:19,550 --> 00:02:22,450
And society as a whole-- adding
together the producers'

49
00:02:22,450 --> 00:02:24,140
and the consumers' surplus--

50
00:02:24,140 --> 00:02:26,210
is going to be worse off.

51
00:02:26,210 --> 00:02:29,030
Now, the way the producers
actually make their decision

52
00:02:29,030 --> 00:02:32,310
on how much to produce is, when
they're moving this line

53
00:02:32,310 --> 00:02:35,260
back and forth deciding how much
they want to constrict

54
00:02:35,260 --> 00:02:38,470
the quantity that they're going
to supply, and when

55
00:02:38,470 --> 00:02:42,300
they're supplying more, the
quantity they're supplying is

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00:02:42,300 --> 00:02:44,540
going to be increasing.

57
00:02:44,540 --> 00:02:46,080
But as they supply more--

58
00:02:46,080 --> 00:02:48,360
since the demand curve
is downward sloping--

59
00:02:48,360 --> 00:02:51,600
the price is going
to be going down.

60
00:02:51,600 --> 00:02:54,120
And now the way the producer
actually makes their

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00:02:54,120 --> 00:02:57,470
production decision is to say,
OK, I know I'm going to lose

62
00:02:57,470 --> 00:03:00,210
some money if I'm producing
more, because the price is

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00:03:00,210 --> 00:03:01,250
going to be falling.

64
00:03:01,250 --> 00:03:04,610
What I want to know is I want to
produce as much as I can so

65
00:03:04,610 --> 00:03:07,160
that, at the margin, the cost
of producing that one

66
00:03:07,160 --> 00:03:10,390
additional unit is the same as
the revenue that I'm going to

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00:03:10,390 --> 00:03:12,620
be taking in for that
additional unit.

68
00:03:12,620 --> 00:03:15,320
The point where I'm producing,
and the additional cost of

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00:03:15,320 --> 00:03:17,690
that unit is more than the
additional money that I'm

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00:03:17,690 --> 00:03:20,510
taking in, I'm going to stop
assuming that there's no

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00:03:20,510 --> 00:03:22,330
competition.

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00:03:22,330 --> 00:03:24,790
So the monopolist firm is going
to set the marginal cost

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00:03:24,790 --> 00:03:26,960
equal to the marginal revenue.

74
00:03:26,960 --> 00:03:29,800
So we have a total cost
function, so calculating the

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00:03:29,800 --> 00:03:32,780
marginal cost is pretty
straightforward.

76
00:03:32,780 --> 00:03:37,370
I'm just going to take the
derivative with respect to Q,

77
00:03:37,370 --> 00:03:39,320
and the marginal cost for
a monopolist firm

78
00:03:39,320 --> 00:03:41,420
is going to be 2Q.

79
00:03:41,420 --> 00:03:43,890
Now, it's tempting when we
look at this revenue

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00:03:43,890 --> 00:03:46,770
function-- revenue just being
the total quantity I'm

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00:03:46,770 --> 00:03:49,220
producing times the price
I'm receiving.

82
00:03:49,220 --> 00:03:52,090
It's tempting to just take the
derivative here with respect

83
00:03:52,090 --> 00:03:55,270
to Q, and say that marginal
revenue is going

84
00:03:55,270 --> 00:03:57,340
to be equal to price.

85
00:03:57,340 --> 00:03:59,800
But that's not what the
monopolist does.

86
00:03:59,800 --> 00:04:02,080
Because in a competitive
situation, we were setting

87
00:04:02,080 --> 00:04:04,770
marginal cost equal to P.

88
00:04:04,770 --> 00:04:08,120
In the monopolist situation,
the monopolist is going to

89
00:04:08,120 --> 00:04:12,190
look at this P right here, and
they're going to say I know

90
00:04:12,190 --> 00:04:17,149
how the consumers are going to
respond based on my decision

91
00:04:17,149 --> 00:04:18,160
to produce.

92
00:04:18,160 --> 00:04:25,030
So I'm going to replace this
P with the demand curve, 24

93
00:04:25,030 --> 00:04:29,880
minus Q. So I can plan how much
I'm producing based on

94
00:04:29,880 --> 00:04:32,150
what I know the consumer's
response to my production

95
00:04:32,150 --> 00:04:35,550
choice is going to be.

96
00:04:35,550 --> 00:04:38,910
So instead of taking the
derivative of this function,

97
00:04:38,910 --> 00:04:45,340
I'm going to plug-in 24 minus Q
and we're going to find the

98
00:04:45,340 --> 00:04:48,440
marginal revenue using
this function.

99
00:04:48,440 --> 00:04:53,690
When we do this, we find that
the marginal revenue is equal

100
00:04:53,690 --> 00:04:57,370
to 24 minus 2Q.

101
00:04:57,370 --> 00:05:01,730
And all we have to do now is
we have to set the marginal

102
00:05:01,730 --> 00:05:04,900
revenue and the marginal cost
equal, and we can find the

103
00:05:04,900 --> 00:05:07,140
quantity that's going
to be produced at

104
00:05:07,140 --> 00:05:08,390
the monopolist outcome.

105
00:05:10,960 --> 00:05:13,930
Solving for Q, you find that
the quantity is going to be

106
00:05:13,930 --> 00:05:15,490
equal to 6.

107
00:05:15,490 --> 00:05:18,890
And then we can solve for the
price just by going back to

108
00:05:18,890 --> 00:05:22,020
the demand curve that's
given on our graph.

109
00:05:22,020 --> 00:05:35,740
The price here in the
monopolist case

110
00:05:35,740 --> 00:05:39,740
is going to be 18.

111
00:05:39,740 --> 00:05:41,640
So now we can come back
to our graph.

112
00:05:41,640 --> 00:05:44,630
We know that the monopolist
level of output is going to be

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00:05:44,630 --> 00:05:47,460
6, so we can label this 0.6.

114
00:05:47,460 --> 00:05:49,510
We know the price that's
going to be charged--

115
00:05:49,510 --> 00:05:52,710
which is not the intersection
with the supply curve, it's

116
00:05:52,710 --> 00:05:55,050
going to be the intersection
with the demand curve--

117
00:05:55,050 --> 00:05:58,950
this price is going to be 18.

118
00:05:58,950 --> 00:06:02,910
And on our graph it's going to
also be useful to label two

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00:06:02,910 --> 00:06:04,130
more points.

120
00:06:04,130 --> 00:06:06,600
That'll just make it easier for
us to calculate consumer

121
00:06:06,600 --> 00:06:09,690
surplus, producer surplus,
and deadweight loss.

122
00:06:09,690 --> 00:06:13,720
We're going to want to label
this point right here so the

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00:06:13,720 --> 00:06:18,010
equilibrium quantity is 8-- and
you'll see in a second why

124
00:06:18,010 --> 00:06:19,230
I'm labeling that.

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00:06:19,230 --> 00:06:22,230
And you're also going to want
to label where, when the

126
00:06:22,230 --> 00:06:25,230
quantity is 6, the intersection

127
00:06:25,230 --> 00:06:26,150
with the supply curve.

128
00:06:26,150 --> 00:06:30,770
So when the quantity is 6, you
know that the marginal cost

129
00:06:30,770 --> 00:06:32,150
curve is given here.

130
00:06:32,150 --> 00:06:39,480
So that means the intersection
right here is going to be 12.

131
00:06:39,480 --> 00:06:42,530
And this is going to make our
calculations of the area of

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00:06:42,530 --> 00:06:46,850
PS, the area of CS, and
the area of DWL just

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00:06:46,850 --> 00:06:49,210
a little bit easier.

134
00:06:49,210 --> 00:06:52,060
Now, to calculate consumer
surplus, I'm just going to

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00:06:52,060 --> 00:06:56,390
multiply the height of this
triangle right here by the

136
00:06:56,390 --> 00:06:57,930
length of the triangle,
and I'm going to

137
00:06:57,930 --> 00:06:59,440
take one half of that.

138
00:06:59,440 --> 00:07:13,210
So consumer surplus in
this situation is

139
00:07:13,210 --> 00:07:15,500
going to equal 18.

140
00:07:15,500 --> 00:07:16,910
And now we're going to
do the same thing

141
00:07:16,910 --> 00:07:18,460
for producer surplus.

142
00:07:18,460 --> 00:07:21,490
We're going to add the area of
this rectangle to the area of

143
00:07:21,490 --> 00:07:23,220
this triangle at the
bottom as well.

144
00:07:37,160 --> 00:07:41,400
So the first term here that's
given is the area of the

145
00:07:41,400 --> 00:07:46,100
rectangle, and the term here is
the area of the triangle.

146
00:07:46,100 --> 00:07:47,600
Adding these together, we're
going to find that the

147
00:07:47,600 --> 00:07:53,810
producer surplus is 72.

148
00:07:53,810 --> 00:07:55,900
And now, to calculate the
deadweight loss you really

149
00:07:55,900 --> 00:07:57,360
have two options.

150
00:07:57,360 --> 00:08:01,070
One, you could find the total
producer and consumer surplus

151
00:08:01,070 --> 00:08:01,990
at equilibrium--

152
00:08:01,990 --> 00:08:04,960
so the area of this large
triangle right here.

153
00:08:04,960 --> 00:08:08,270
And you could subtract out the
new consumer surplus and the

154
00:08:08,270 --> 00:08:11,100
new producer surplus, and you'll
be left with only the

155
00:08:11,100 --> 00:08:12,660
deadweight loss.

156
00:08:12,660 --> 00:08:14,720
For our purposes, it's going to
be a little bit easier to

157
00:08:14,720 --> 00:08:18,400
just take the height of the
triangle and the length of the

158
00:08:18,400 --> 00:08:21,110
base, and to multiply through.

159
00:08:21,110 --> 00:08:22,730
When we do that, we're going
to find that the deadweight

160
00:08:22,730 --> 00:08:38,220
loss is going to
be equal to 6.

161
00:08:44,150 --> 00:08:46,600
And so you can see that the
producer surplus is pretty

162
00:08:46,600 --> 00:08:48,570
high in this situation.

163
00:08:48,570 --> 00:08:50,590
And so the government's going
to come in in our next

164
00:08:50,590 --> 00:08:52,810
problem, and they're going to
say we have an intervention

165
00:08:52,810 --> 00:08:55,540
that might be able to correct
this problem that we see in

166
00:08:55,540 --> 00:08:56,900
the market.

167
00:08:56,900 --> 00:08:59,460
Part B says, "How does charging
the monopolist a

168
00:08:59,460 --> 00:09:05,050
specific tax of $8 per unit
affect the monopoly optimum,

169
00:09:05,050 --> 00:09:08,660
and the welfare of consumers,
the monopoly, and society,

170
00:09:08,660 --> 00:09:11,810
where society's welfare or
surplus includes the tax

171
00:09:11,810 --> 00:09:14,940
revenue?"

172
00:09:14,940 --> 00:09:19,050
So, what's basically happening
in this new case is we're

173
00:09:19,050 --> 00:09:21,630
going to start off with the same
sort of problem where the

174
00:09:21,630 --> 00:09:25,430
monopolist gets to decide how
much they're going to output.

175
00:09:25,430 --> 00:09:28,140
And we're interested in
the marginal cost and

176
00:09:28,140 --> 00:09:30,100
the marginal revenue.

177
00:09:30,100 --> 00:09:36,080
Now, the marginal revenue is
going to be represented by the

178
00:09:36,080 --> 00:09:39,460
same equation, and we're going
to substitute in for price the

179
00:09:39,460 --> 00:09:40,710
demand curve again.

180
00:09:45,610 --> 00:09:48,500
And when we solve through,
substituting in for the demand

181
00:09:48,500 --> 00:09:50,020
curve and taking the derivative,
we're going to

182
00:09:50,020 --> 00:09:58,060
find that the marginal revenue
is again going to be equal to

183
00:09:58,060 --> 00:10:02,810
24 minus 2Q.

184
00:10:02,810 --> 00:10:05,330
So the marginal revenue
hasn't changed at all.

185
00:10:05,330 --> 00:10:07,330
What is going to change is going
to be the total cost

186
00:10:07,330 --> 00:10:16,260
curve for the monopolist. So
this was the cost curve that

187
00:10:16,260 --> 00:10:19,670
we started off with, but now
for each unit Q that the

188
00:10:19,670 --> 00:10:22,680
monopolist produces, it's
going to be taxed

189
00:10:22,680 --> 00:10:24,790
at a rate of t.

190
00:10:24,790 --> 00:10:30,310
So we can add in the
cost of the tax.

191
00:10:30,310 --> 00:10:32,650
And in the next step, I'm going
to take the derivative

192
00:10:32,650 --> 00:10:37,160
with respect to Q, and I'm going
to substitute in for t

193
00:10:37,160 --> 00:10:39,950
the price of the tax, or 8.

194
00:10:39,950 --> 00:10:52,410
So now our new marginal cost
is equal to 2Q plus 8.

195
00:10:52,410 --> 00:10:54,200
And to solve for our new
equilibrium, we're just going

196
00:10:54,200 --> 00:10:59,100
to set marginal cost and
marginal revenue equal.

197
00:10:59,100 --> 00:11:00,370
And when we do that, we're
going to find that

198
00:11:00,370 --> 00:11:05,080
Q is equal to 4.

199
00:11:05,080 --> 00:11:17,960
And plugging into the demand
curve, you're going to find

200
00:11:17,960 --> 00:11:21,500
that the price is equal to 20.

201
00:11:21,500 --> 00:11:25,100
Now in this problem, you could
go through and you could go

202
00:11:25,100 --> 00:11:27,430
ahead and you could calculate
the consumer surplus, the

203
00:11:27,430 --> 00:11:30,220
producer surplus, the deadweight
loss and the tax

204
00:11:30,220 --> 00:11:33,510
revenue, and you could figure
out quantitatively how much

205
00:11:33,510 --> 00:11:34,560
they've changed.

206
00:11:34,560 --> 00:11:36,530
But we're just going to draw a
new graph, and we're going to

207
00:11:36,530 --> 00:11:39,710
look at the changes in consumer
surplus, producer

208
00:11:39,710 --> 00:11:43,110
surplus, and deadweight loss,
and make a qualitative

209
00:11:43,110 --> 00:11:47,770
assessment of how those
quantities have changed.

210
00:11:47,770 --> 00:11:55,130
So on a new axes, I'm going to
draw the old supply curve and

211
00:11:55,130 --> 00:11:56,380
the demand curve.

212
00:11:58,420 --> 00:12:01,060
Now, what's essentially
happening is, since the

213
00:12:01,060 --> 00:12:04,180
suppliers know for each unit
they're producing they're

214
00:12:04,180 --> 00:12:08,260
going to have to pay a tax
of 8, the supply curve is

215
00:12:08,260 --> 00:12:13,170
essentially shifting
up by 8 units.

216
00:12:13,170 --> 00:12:17,210
And I'm representing the new
supply curve with an s prime.

217
00:12:17,210 --> 00:12:20,800
So now, instead of the suppliers
making their

218
00:12:20,800 --> 00:12:23,250
monopolist decision based on
this supply curve and the

219
00:12:23,250 --> 00:12:26,680
demand curve, they're now
making it over here.

220
00:12:26,680 --> 00:12:28,860
And so what's going to happen is
they're going to have some

221
00:12:28,860 --> 00:12:31,690
new monopolist output.

222
00:12:31,690 --> 00:12:38,010
And in this case, we know the
new monopolist output is 4.

223
00:12:38,010 --> 00:12:41,800
We know that the new
monopolist price

224
00:12:41,800 --> 00:12:46,670
is going to be 20.

225
00:12:46,670 --> 00:12:51,780
And so we can see on this graph
that producer surplus is

226
00:12:51,780 --> 00:12:57,750
going to be represented
by this four-sided

227
00:12:57,750 --> 00:12:59,000
figure right here.

228
00:13:01,180 --> 00:13:03,960
We know that the tax revenue
is going to be-- since the

229
00:13:03,960 --> 00:13:08,130
distance from this point to this
point is 8, from 0 to 4--

230
00:13:08,130 --> 00:13:12,440
this is going to represent the
tax, this box right here.

231
00:13:14,980 --> 00:13:18,480
And we know that the consumer
surplus is going to be this

232
00:13:18,480 --> 00:13:23,270
small triangle up top.

233
00:13:23,270 --> 00:13:25,570
Meanwhile, the dead weight loss
is anything that's not

234
00:13:25,570 --> 00:13:28,340
represented that would have been
in our original producer

235
00:13:28,340 --> 00:13:30,850
surplus, plus consumer
surplus.

236
00:13:30,850 --> 00:13:36,410
So the deadweight loss is this
large triangle over here.

237
00:13:36,410 --> 00:13:39,670
So basically what's happened
is, compared to our initial

238
00:13:39,670 --> 00:13:43,950
case, the government's come
in and for society--

239
00:13:43,950 --> 00:13:45,910
since there's less
being produced--

240
00:13:45,910 --> 00:13:51,210
we've basically shifted
the monopolist

241
00:13:51,210 --> 00:13:53,430
quantity over to the left.

242
00:13:53,430 --> 00:13:57,590
This means that, overall, the
deadweight loss, this triangle

243
00:13:57,590 --> 00:14:01,120
over here, has increased
in size.

244
00:14:01,120 --> 00:14:06,620
So if the deadweight loss is
increasing, we can say that

245
00:14:06,620 --> 00:14:08,695
society is going to be worse
off in this situation.

246
00:14:11,700 --> 00:14:14,870
In another case, it's also clear
to see that the consumer

247
00:14:14,870 --> 00:14:18,760
surplus, since the consumers are
paying a higher price for

248
00:14:18,760 --> 00:14:22,980
a lower quantity, we can also
say that the consumer surplus

249
00:14:22,980 --> 00:14:24,230
is going to decrease.

250
00:14:26,940 --> 00:14:29,270
So we can safely say that the
consumers are going to be

251
00:14:29,270 --> 00:14:31,550
worse off as well.

252
00:14:31,550 --> 00:14:34,710
And then the last interpretation
is knowing that

253
00:14:34,710 --> 00:14:37,030
in the first case the producers
were allowed to make

254
00:14:37,030 --> 00:14:41,190
their production decision just
given the demand curve and

255
00:14:41,190 --> 00:14:43,350
their original supply curve.

256
00:14:43,350 --> 00:14:46,550
Now their production decision
also has to take into account

257
00:14:46,550 --> 00:14:49,150
the government taking away
some of their profits.

258
00:14:49,150 --> 00:14:51,500
If the government is taking
some away some of their

259
00:14:51,500 --> 00:14:56,230
profits, the producers
are necessarily going

260
00:14:56,230 --> 00:14:58,080
to have less surplus.

261
00:14:58,080 --> 00:15:01,200
So the producers are going
to be worse off as well.

262
00:15:01,200 --> 00:15:03,870
So overall, the only person
who might possibly benefit

263
00:15:03,870 --> 00:15:05,690
from this policy would
be the government.

264
00:15:05,690 --> 00:15:09,100
But overall, the producers, the
consumers, and society are

265
00:15:09,100 --> 00:15:12,180
going to be worse off.

266
00:15:12,180 --> 00:15:15,830
Now, the last part of this
problem is part C. And instead

267
00:15:15,830 --> 00:15:21,230
of implementing a tax on the per
unit production decision

268
00:15:21,230 --> 00:15:24,010
for the producers, now the
government's going to consider

269
00:15:24,010 --> 00:15:25,870
a different tax policy.

270
00:15:25,870 --> 00:15:29,170
Part C says "How does imposing
a tax on profits--

271
00:15:29,170 --> 00:15:32,600
profit after tax equals
1 minus t--

272
00:15:32,600 --> 00:15:36,930
affect the monopoly optimum, and
the welfare of consumers,

273
00:15:36,930 --> 00:15:40,440
the monopoly, and society?"

274
00:15:40,440 --> 00:15:43,660
Now basically, what's happening
in this situation is

275
00:15:43,660 --> 00:15:45,390
the government's going
to come in.

276
00:15:45,390 --> 00:15:47,800
And they're going to say all
right, after you've made your

277
00:15:47,800 --> 00:15:50,515
decision on how much to produce,
we're going to take a

278
00:15:50,515 --> 00:15:53,590
set percentage of the
producer's surplus.

279
00:15:53,590 --> 00:15:56,880
So if you get a producer's
surplus of this amount, then a

280
00:15:56,880 --> 00:16:04,870
certain chunk of it is going
to go to Uncle Sam at a tax

281
00:16:04,870 --> 00:16:09,150
percentage which we can
say is just x percent.

282
00:16:09,150 --> 00:16:13,520
Now that percentage of tax, it
doesn't change the fact that

283
00:16:13,520 --> 00:16:17,440
the producers want to have as
much surplus as possible.

284
00:16:17,440 --> 00:16:20,540
Just because they're going to
lose, say, 10% of it because

285
00:16:20,540 --> 00:16:23,010
of Uncle Sam, it's not actually
going to affect the

286
00:16:23,010 --> 00:16:25,120
fact that they want their
producer surplus to be as big

287
00:16:25,120 --> 00:16:26,530
as possible.

288
00:16:26,530 --> 00:16:29,340
So what happens in this
situation is that this after

289
00:16:29,340 --> 00:16:32,570
profit tax will not affect
the equilibrium at all.

290
00:16:32,570 --> 00:16:33,510
And we're going to
be left with the

291
00:16:33,510 --> 00:16:37,540
same consumer surplus.

292
00:16:37,540 --> 00:16:40,500
Producer surplus is going to be
lower because of the tax,

293
00:16:40,500 --> 00:16:42,710
but overall, society is going
to be left with the same

294
00:16:42,710 --> 00:16:44,510
social welfare.

295
00:16:44,510 --> 00:16:47,440
So really what this problem is
looking at through its three

296
00:16:47,440 --> 00:16:50,360
parts, we look at the monopolist
situation, and we

297
00:16:50,360 --> 00:16:54,910
look at how the government can
try to adjust with tax policy

298
00:16:54,910 --> 00:16:56,630
what's happening
in the market.

299
00:16:56,630 --> 00:17:00,710
And what we saw in our second
scenario is that when they

300
00:17:00,710 --> 00:17:04,839
charge a per unit tax on the
producers, societal welfare is

301
00:17:04,839 --> 00:17:06,119
going to go down.

302
00:17:06,119 --> 00:17:08,829
But in the third case, when
they're just taking a set

303
00:17:08,829 --> 00:17:14,069
percentage from the producer
surplus, the overall welfare

304
00:17:14,069 --> 00:17:16,930
for the society is going
to stay the same.

305
00:17:16,930 --> 00:17:20,890
So bundled in this problem we
had the monopolist situation,

306
00:17:20,890 --> 00:17:23,290
setting marginal cost equal
to marginal revenue.

307
00:17:23,290 --> 00:17:26,010
And we also looked at tax
implications on a per unit

308
00:17:26,010 --> 00:17:33,300
basis, and on a profit basis
with a set tax after the

309
00:17:33,300 --> 00:17:34,640
production decision is made.

310
00:17:34,640 --> 00:17:36,200
I hope you found this
problem helpful.