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4. What is the tax incidence of an excise tax when demand is highly inelastic? Highly elastic? What effect does the elasticity of supply have on the incidence of an excise tax? What is the efficiency loss of a tax, and how does it relate to elasticity of demand and supply?

5. Contrast the outcomes of the Standard Oil and U.S. Steel cases. What was the main antitrust issue in the DuPont cellophane case? In what major way do the Microsoft and Standard Oil cases differ?

6. In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal‐cost) pricing and fair‐return pricing by referring again to Figure 10.9. Assuming that a government subsidy might be used to cover any loss resulting from marginal‐cost pricing, which pricing policy would you favor? Why? What problems might such a subsidy entail?

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