AP Microeconomics / Unit 6: Market Failure and the Role of Government
6.4 The Effects of Government Intervention in Different Market Structures
Notes
- Lump-sum taxes affect fixed cost (profit) but not output.
- Per-unit taxes shift MC up; output falls.
- Regulating a natural monopoly: socially optimal price ($P=MC$) or fair-return price ($P=ATC$).
- Antitrust laws promote competition.
Practice
A lump-sum tax on a monopoly changes:
Fixed cost.
Setting a natural monopoly's price at $P=MC$ achieves:
Socially optimal.
The fair-return price is where:
Zero economic profit.
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