Assignment:
1) Suppose supply is given by: P = 10 2Qs and demand is given by: P = 120 - 3Qd.
A) Find equilibrium price and quantity.
B) What are the demand and supply elasticities at equilibrium?
C) Next, suppose the government imposes an excise tax of $10 per unit. What is the price that consumers pay, the price that sellers receive after paying the tax, and the tax revenue?
D) Show the portion of the tax that is borne by consumers and what portion is borne by producers using the elasticity method. (Consumers share is:es/es +| ed|)
E) What is the deadweight loss due to taxation?
2) Suppose a monopolist faces the market demand curve: P = 100 - 2Qd.
A) What is total revenue at a price of $60? What is total revenue at a price of $58?
B) What is the marginal revenue of the 21st unit of output? Show the gain in revenue from the increase in output (the quantity effect) and show the loss in revenue (the price effect) from lowering the price on a graph.
C) Why is marginal revenue less than price for a monopolist?
D) If the marginal cost of producing output is zero what is the profit maximizing quantity?
3) Suppose a natural monopoly faces the market demand curve: P = 122 - Qd, has fixed costs of $2000 and constant marginal cost of S2 on all units of output.
A) What is profit maximizing output level and price?
B) That are profits?
C) Suppose the government imposes zero economic profit regulation. What is the zero-profit regulated price and quantity?
D) Suppose the government imposes zero markup regulation (markup=price-marginal cost). What is the zero-markup regulated price and quantity?
What are zero-markup regulation profits? Will the monopoly stay in business in the long-run with this type of regulation? Is there a government policy that will keep the monopoly in business in the long-run? How much does this policy cog taxpayers?
E) Which policy C) or D) results in the greatest net gain for consumers in terms of consumer surplus after paying taxes for the policies expense?