Consider the following two models of a discriminating monopolist subject to a tax in one market: (i) max R1 (x1) + R2(x2) – C(x1, + x2) – tx1,
(ii) max R(x1, x2) – C(x1, x2) – tx1
In model (i), cost is a function only of total output, whereas in (ii), cost and revenue are more complicated (and general) functions of both outputs. The tax rate t is a parameter. What are the observable similarities and differences between these two models?