Author Question: In the worst case scenario, the combined marginal tax rate of cash and in-kind programs combined ... (Read 215 times)

Zoey63294 · **on:** Jul 1, 2018

In the worst case scenario, the combined marginal tax rate of cash and in-kind programs combined could be equal to or greater than 100.

Indicate whether the statement is true or false

Question 2

McCullough has a monopoly on rental dwellings in the local community. The demand for rental dwellings is QD = 70,000 - 50P P = 1,400 - 0.02 QD. The resulting marginal revenue function is MR(Q) = 1,400 - 0.04 QD.

McCullough's marginal cost of providing rental dwellings is MC(Q) = 0.01Q + 20. Suppose that to ease the burden on renters, the local community has instituted a price ceiling of 480. Does consumer surplus increase due to this price ceiling? Does social welfare increase as a result of the price ceiling?

voltaire123 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

T

Answer to Question 2

Before the price ceiling is imposed, McCullough was charging a price of 832 per unit. Since McCullough has market power, we know that social welfare is less than it would be fore a competitive market. A competitive market sets price equal to marginal cost. At 480, demand is 46,000. Marginal cost at 46,000 is exactly 480. This means that the profit maximizing solution for McCullough is to provide 46,000 units at the price ceiling of 480 per unit. Since the price equals marginal cost, the market enjoys the competitive market price. In this case, we know that societal welfare exceeds welfare in a monopoly market.