Question

p(q)=50-0.5q and cost curve=10q (the unit tax equilibrium Q=36) What is the ad valorem tax which...

p(q)=50-0.5q and cost curve=10q (the unit tax equilibrium Q=36)

What is the ad valorem tax which will generate the same quantity distortion?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

p = 50 - 0.5q  

MR = 50 - q  

cost curve after ad valorem tax is

c = (1 + t)10q

where t is ad valorem rate

MC = 10(1 + t)

MR = MC (equilibrium condition or profit maximizing condition)

50 - q = 10(1 + t)  

50 - q = 10 + 10t  

50 - 10 - 10t = q  

40 - 10t = q  

Equilibrium quantity with per unit tax is Q = 36  

equilibrium quantity with ad valorem tax is q = 40 - 10t  

36 = 40 - 10t  

10t = 40 - 36

10t = 4

t = 4/10  

t = 40%  

so required ad valorem tax rate is 40%

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A market has a demand curve given by P = 800 – 10Q where P =...
A market has a demand curve given by P = 800 – 10Q where P = the price per unit and Q = the number of units. The supply curve is given by P =100 + 10Q.(10 points) Graph the demand and supply curves and calculate the equilibrium price and quantity in this market.(5 points) Calculate the consumer surplus at equilibrium.(5 points) Calculate the producer surplus at equilibrium.(5 points)(5 points) Calculate the total surplus at equilibrium
The demand function for a product is given by p=80-0.5Q and the supply function is p=50+0.25Q,...
The demand function for a product is given by p=80-0.5Q and the supply function is p=50+0.25Q, where p is the price and Q is the quantity. Suppose that the government impose a tax of $15 on every unit sold. a) Find equilibrium price and quantity before imposing the tax. b) Find price of buyer and seller and the quantity sold in the market after tax. c) Find the tax burden on buyer and seller. d) Find government revenue and deadweight...
The government imposes a 20% ad valorem tax on a monopoly with cost curve C(Q) =...
The government imposes a 20% ad valorem tax on a monopoly with cost curve C(Q) = 10 + 4Q^2 facing demand curve 200-5Q. Round your answers to one significant digit after the decimal point at each step. Don't copy others' answers, or I will report you. Consumer surplus CS(Q)=   Producer surplus PS(Q)=   Government revenues T(Q)=   Deadweight loss DWL(Q)=   HINT: remember what is always the benchmark used to calculate deadweight loss.
Consider a firm with the demand function P(Q)=(50-2Q), and the total cost function TC(Q)=10,000+10Q. Find the...
Consider a firm with the demand function P(Q)=(50-2Q), and the total cost function TC(Q)=10,000+10Q. Find the profit maximizing quantity. Calculate the profit maximizing price (or the market price). Hint: MR(Q)=(50-4Q),
A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist...
A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist faces a cost curve: C(Q) = 5Q. The government is seeking ways to collect tax revenue from the monopolist by imposing an ad valorem tax of 20% on the monopolist. a. What price and quantity does the monopolist choose (post-tax) and how much revenue does the government generate from the tax? Does the monopolist earn any profits in this case? If so, how much...
Part I. Partial Equilibrium Tax Incidence under Competition Suppose the market for cau-hot-dogs is characterized by...
Part I. Partial Equilibrium Tax Incidence under Competition Suppose the market for cau-hot-dogs is characterized by the following daily demand and supply curves. Drawing a diagram of the curves will help you find the right answers. Demand curve: P = 1300 - Q Supply curve: P = 180 + 9Q 1. What is the market equilibrium quantity of a cau-hot-dog? 2. What is the market equilibrium price of a cau-hot-dog? Suppose the government requires the seller to pay 10% of...
A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist...
A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist faces a cost curve: C(Q) = 5Q. The government is seeking ways to collect tax revenue from the monopolist by imposing an ad valorem tax of 20% on the monopolist. a. What price and quantity does the monopolist choose (post-tax) and how much revenue does the government generate from the tax? Does the monopolist earn any profits in this case? If so, how much...
A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist...
A monopolist faces the inverse demand for its output: p = 30 – Q The monopolist faces a cost curve: C(Q) = 5Q. The government is seeking ways to collect tax revenue from the monopolist by imposing an ad valorem tax of 20% on the monopolist. 1)Draw an approximate graph to depict the before-tax and after-tax price – quantity combination (in one graph).
Consider a total cost function of TC = 0.5Q^2 +10Q + 20 and the market demand...
Consider a total cost function of TC = 0.5Q^2 +10Q + 20 and the market demand function Q=70-p. a What is the profit-maximizing output and price for the perfect competition? Calculate its profit. b What is the profit-maximizing output and price for the monopolist? Calculate its profit. c What is the profit-maximizing output and price for the monopolist in the second market? Calculate its profit.
A firm's long-run total cost curve is TC(Q) = 40Q - 10Q^2 + Q^3. a. Over...
A firm's long-run total cost curve is TC(Q) = 40Q - 10Q^2 + Q^3. a. Over what range of output does the production function exhibit economies of scale? b. Over what range does it exhibit diseconomies of scale? c. At what quantity is minimum efficient scale? .
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT