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Maximizing tax revenue for profit maximizing monopolist with the Cobb-Douglas production function and linear demand as a bilevel programming problem
Zrinka Lukač
orcid.org/0000-0003-2986-6345
; University of Zagreb, Faculty of Economics and Business
Krunoslav Puljić
; University of Zagreb, Faculty of Economics and Business
Vedran Kojić
; University of Zagreb, Faculty of Economics and Business
Abstract
Optimal taxation and profit maximization are two very important problems, naturally related to one another since companies striving operates given tax system. However, in the literature these two problems are usually considered separately, either by studying optimal taxation or by studying profit maximization. This paper tries links the two problems together by formulating a bilevel model in which government acts as a leader and profit maximizing follower act as a follower. The exact form of the tax revenue function as well as optimal tax amount and optimal input levels are derived in cases when returns of scale take on values 0.5, 1 and 2. Several numerical examples and accompanying illustrations are given.
Keywords
optimal taxation; government; profit maximization; monopolist; Cobb-Douglas production function; linear demand; bilevel programming
Hrčak ID:
315960
URI
Publication date:
11.4.2024.
Visits: 65 *