Homework SourseAssume a competitive firm faces a market price of 80 a cost
Assume a competitive firm faces a market price of ?$80?, a cost curve? of:
C? = 0.003q3 ?+ 25q ?+ 750?,
and a marginal cost curve ? of:
MC? = 0.009q2 + 25.
If a specific tax of ?$7 per unit is? implemented, what would be the new equilibrium output? level?
- It would be _____________ units. ?(round your answer to two decimal places?)
?If, instead, a lump sum tax of ?$547 is? implemented, what would be the new equilibrium output? level?
- It would be _______units. ?(round your answer to two decimal places?)
Solution
With tax MC becomes
MC= 0.009q^2 + 25 + 7
At equilibrium P=MC and P= 80
0.009q^2+25+7= 80
0.0 009q^2 = 48
q^2= 5333.33
q= 73.029
= 73.03
New output is 73.03
Lum sum tax does effect MC.
At equilibrium MC=P
0.009 q^2 +25 = 80
q^2 = 6111.11
q= 78.173
= 78.17
It would be 78.17
