Taxing a price searcher with lump-sum tax

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Some have argued that taxing a price searcher with a lump-sum tax (tax that is the same regardless of level of current production) and then using the tax proceeds to subsidize that producer’s output on a per-unit basis would reduce the efficiency loss due to monopoly. Others say that this is ridiculous because the tax and subsidy would offset each other and, therefore, have no effect on the producer’s output decision. Which position do you believe is correct? Explain.

Reference no: EM131392122

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