If a monopolist were allowed (and able) to first degree price discrimination, there would be no efficiency/equity tradeoff so long as the government can tax the profits of the firm and redistribute the tax revenues in a lump sum way.

Answer the following statement true (T) or false (F)


True

Rationale: The efficient output level is produced under first degree price discrimination -- and neither a profits tax nor a lump sum subsidy creates inefficiencies. Thus, one could achieve a more "equitable" outcome without any efficiency distortions.

Economics

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