How would windfall taxes worsen the monopoly if it would just take the supernormal profits generated by the monopoly, whilst having no effect on the output nor the price (since it's still producing at where MR=MC)?
+Jack Ward That doesnt make sense..the whole point is to provide an incentive for new entry..limiting the profit provides less of an incentive to enter the industry and so monopolies continue to thrive.
Can you please answer- I've watched this like 3 times now and still dont understand the profit control one. To clarify, is capital employed the amount spent by a business- so its costs? or are you referring to capital as in factor inputs? I'm really confused- I thought this was like a ROCE (as in return on costs/money), but in this you are talking about capital goods?
Kiran Singh capital employed is the amount of long term investment by firms, so a percentage return on capital employed reduces the risk of losing those investments, implying a long - run chance of increased efficiency and profitability therefore lower price. Think of it like a monopoly using more of its profits for dynamic efficiency with extremely low amounts of risk in doing so
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