Waiting for answer This question has not been answered yet. You can hire a professional tutor to get the answer.

QUESTION

Consider the perfectly competitive market for one good. That is, both consumers and producers are price takers. The demand function is given by QD = −aP +b, where a > 0 and b > 0 are real numbers an

Consider the perfectly competitive market for one good. That is, both consumers and producers are price takers. The demand function is given by QD = −aP +b, where a > 0 and b > 0 are real numbers and P is the market price. The supply is given by QS = cP, where c > 0 is a real number. Assume the government introduces a per-unit tax,τ , that is paid by the producers.

1. (2 points) Suppose that a = c = 2 and b = 10. Derive an expression for the tax revenue as a function of the per-unit tax τ . 2. (3 points) Sketch the graph of the tax revenue. That is, plot the tax-revenue on the vertical axis (”the y-axis”) against the per-unit tax, τ , on the horizontal axis (”the x−axis”). Recall that ’sketching a graph’ involves: find the intercept with the y-axis, the intercepts with the x-axis and the shape of the graph. 3. (6 points) Repeat part (1.) and (2.) without assuming specific values for a,b and c. Recall that ’sketching a graph’ involves: find the intercept with the y-axis, the intercepts with the x-axis and the shape of the graph. Some of your answers might dependent on the parameters a, b and c.

Show more
LEARN MORE EFFECTIVELY AND GET BETTER GRADES!
Ask a Question