The inverse demand in a Cournot duopoly is P = a - b (Q₁ + Q₂), and costs are C₁(Q₁) = c₁Q₁ and C₂(Q₂) = c₂Q₂.The Government has imposed a per unit tax of $t on each unit sold by each firm.The tax revenue is: A)t times the total output of the two firms should there be no sales tax. B)less than t times the total output of the two firms should there be no sales tax. C)greater than t times the total output of the two firms should there be no sales tax. D)none of the statements associated with this question are correct.

Question

Quizplus · Accepted Answer

The tax revenue would be less than t times the total output of the two firms should there be no sales tax. This is because in a Cournot duopoly, the quantity produced by each firm is already less than what would be produced in a monopoly, resulting in lower output levels. Therefore, the tax revenue generated from each firm would also be lower than it would be in a monopoly setting.

The Inverse Demand in a Cournot Duopoly Is P =