In Exercise 6, what tax should the government impose on the producer if it wishes to maximize its tax revenue?
Exercise 6
A fur dealer finds that when coats sell for $4000, monthly sales are 6 coats. When the price increases to $5000, the demand is for 5 coats. Assume that the demand equation is linear.
(a) Find the demand and revenue equations.
(b) If overhead is $2500 per month and the production cost per coat is $2000, find the cost equation and profit equation.
(c) Find the level of production that maximizes profit.