Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30¢ per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50¢ per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers.

If the economy is strong, the total revenue of firm C will be

$1,680,000.

$2,400,000.

$2,000,000.

$1,400,000.

Given the following information

Q_D = 240 - 5P

Q_S = p

where Q_D is the quantity demand, Q_S is the quantity supplied and P is the price.

Suppose that the government decides to impose a tax $12 per unit on sellers in this market. Determine:

a) Demand and supply equation after tax

b) Buyer's price after tax

c) Seller's price after tax

d) Quantity after tax

e) Consumer surplus after tax

f) Producer surplus after tax

g) Tax revenue

h) Deadweight loss of the tax

i) Total surplus after tax

1) Consider the market for milk and suppose the government taxes milk at $0.50 a gallon.

a) Draw a demand and supply diagram and label the following points:

A – the equilibrium without the tax

X – the price that consumers pay along with the quantity of milk under the tax

Z – the price that the sellers receive along with the quantity of milk under the tax

Suppose the tax decreases to $0.25

b) Explain what happens to the quantity of milk in the market?

c) What happens to consumer surplus?

d) What happens to producer surplus?

e) What happens to the deadweight loss?

f) What happens to government revenue?

In a large graph, draw linear supply and demand curves that obey the laws of demand and supply in a coordinate system. Label everything relevant.

Show the equilibrium price and quantity, as well as consumer and producer surplus on the graph. How do you calculate total surplus if there are no externalities?
Suppose the government levies a tax on the sellers of the good.

In a new large graph, show (1) which curve shifts, (2) which way, and (3) derive a new equilibrium quantity, and the prices paid by buyers and received by sellers. Then show the new consumer surplus and producer surplus, as well as government revenue and the deadweight loss.

Suppose the market demand for cigarettes is: QD = 10 − P, and the supply of cigarettes is: QS = −2 + P, where P is the price per pack of cigarettes a. Graph the supply and demand curves. b. What is the equilibrium price and quantity sold of cigarettes? Show this on the graph. If the government imposes a cigarette tax of $1 per pack, c. What is the price paid by consumers? d. What is the price faced by suppliers? e. What is the government revenue from the tax? f. How much is the consumers’ tax burden? g. How much is the producers’ tax burden? h. What is the deadweight loss of the tax?

How do you find the profit maximizing PRICE (not level of output) on a graph for a monopoly with demand, marginal revenue, marginal cost, and average total cost curves.

Assume now that the market in Question 2 is served by a profit maximizing monopoly. The firm is sufficiently large that its marginal cost is equal to the market supply curve in Scenario 3a. Therefore, market demand is still P = 150 - .05Q and the monopoly firm’s MC = 0.45Q + 10. The monopoly has marginal revenue MR = 150 - Q. The monopoly is a large well run firm with a short run average total cost of ATC = 0.25Q.

Suppose the monopolist perfectly price discriminates. What will be its producer surplus?

a.

$19,600.00

b.

$10,027.36

c.

$9025.00

d.

$18,050.00