Assume a competitive firm faces a market price of 8080 a cos

Assume a competitive firm faces a market price of

?$8080?,

a cost curve? of:

C? =

0.0020.002q cubedq3

?+

5050q

?+

750750?,

and a marginal cost curve ? of:

MC? =

0.0060.006q2

? +

5050.

If a specific tax of

?$55

per unit is? implemented, what would be the new equilibrium output? level?

It would be

nothing

units.

?(round

your answer to two decimal

places?)

Solution

PRofit maximizing conditions for competitive firm will be

P=MC

Given that P=$8080 and MC=0.006q^2+5050

8080=0.006q^2+5050

3030=0.006q^2

3030/0.006=q^2

q=710.63 if specific tax is imposed of $55 per unit then new equilibrium output will be

P+55=0.006q^2+5050

3085=0.006q^2

3085/0.006=q^2

q=717.054=717.05