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A person’s utility from goods A and B is U(A, B) = A⋅B. The marginal utilities...

A person’s utility from goods A and B is U(A, B) = A⋅B. The marginal utilities of each good are MUA = B and MUB = A. The person has $120 income to spend on the two goods and the price of both goods equals $1.

e)   A tax of $1 per-unit is placed on A (i.e., increases price of A to $2). Find the new utility maximizing amounts of A and B. Show your answers graphically.
f)   How much tax revenue is collected? Calculate and show graphically.
g)   A lump-sum tax (fixed $-amount income taken from the person), set at the same dollar amount as the per-unit tax revenue generated in part (e), replaces the per-unit tax. Show the new budget constraint (i.e., with the lump-sum tax) on your graph.
h)   The taxes in (e) and (f) both collect the same amount of tax revenue; which, if either, would the person prefer (achieve higher level of utility)?

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