Econ.vision - Tax Incidence in Monopoly

Created by:

Developer Radi GS’23

Price Function for the firm:

60-Q

Marginal Cost Function for the firm:

\frac{Q}{2}

Tax the Demand:

x0.01

Price Function

Please enter a price function for the firm.
Currently, the price function is:
Please make sure to enter a downward-sloping linear function so the calculator will work.

A Note on Theory: How does a linear function with downward slope work?

As an example, y = -2x + 5 is an example of a downward sloping linear function, which can be represented on a graph by a straight line with a negative slope and y-intercept.

Marginal Cost Function

Please enter a marginal cost function for the firm. This is also the inverse supply function.
Currently, the marginal cost function function is:

Tax on Demand Slider

Please use the slider to determine the tax impose on demand curve.
A change in the amount of tax imposed would result in a change in the graph, which would indicate the new tax incidence for the monopoly.

Economic Tax Incidence

The graph will be divided into four sections: the red section represents the deadweight loss of the monopoly, the green section represents the consumer surplus, the blue section represents the producer surplus, and the orange section represents the government surplus.

A Note on Theory: Why do we get deadweight loss even with zero tax?

Even when no tax is imposed, there is still deadweight loss in monopoly because the price is determined by the point where marginal revenue equals marginal cost (MR=MC).