Question

A). A company produces widgets: it is called widget incorporated. The widgets are produced at a constant marginal and average cost of 100 coins per widget. The market demand is Q=80-0.2P.

What is the equilibrium price if Widget Incorporated produces as a single price monopolist?

Suppose the state adds a 20 coin tax per widget on the production of widgets. How much revenue will the tax raise? How much surplus value will be lost? How much profit will Widget Incorporated lose?

B). The market demand curve for part a) is the sum of 20 identical individual demand curves Q=4-0.01P. Suppose widget incorporated is a perfect price discriminator.

What is the eqm price for a package of three widgets?

Suppose the state adds the same 20 coin tax per widget on the production of widgets. How much revenue will now be raised by the tax? How much surplus value will the consumer lose? How much profit will Widget incorporated lose?

Answer 1