Question

A small town with a microbrewery has a demand for local beer and supply demonstrated below.

P	Qd	Qs
$40	10	20
38	12	18
35	15	15
32	18	12
30	20	10
28	22	8

1)As September ends the brewery considers having an Octoberfest Blowout and plans to ramp up production to its maximum and brew 20 cases that week. What will be the cost per case

2)The town council decides to sponsor the Octoberfest. How many dollars would the town have to contribute to each case of beer to get them all purchased?

a)After Octoberfest, equilibrium returns to $_ and Q_

b)To stem teen drinking in the spring, the town council mandates a $30 minimum price per case. Does this mandate impact the market? How?

3)Later the town council abolishes the minimum price and decides to levy a $6 tax per case. What is the taxed equilibrium quantity now and What’s the total price paid by consumers?

a)How much per case does the brewery collect?

b)What is the total tax revenue collect by this tax?

Answer 1

Solution:

1) The price corresponding to quantity supplied of 20 case is $40. Hence, the cost per case will be $40.

2) To purchase all of the beer cases, the council will have to contribute $20 for each case (20 cases). In all, 20 cases are supplied out of which quantity demanded is 10 at price of $40. Now remaining 10 will be purchased by council at price of $40. Total expenditure for 10 cases will be $400.

2.a) After fest, equilibrium price and quantity will be $35 and 15 respectively.