1.Suppose in the perfectly competitive market for flavored yogurt, the demand is

Question

1.Suppose in the perfectly competitive market for flavored yogurt, the demand is given by
Q=80-4p and the supply is given byQ=25+2p . The government imposes a $2 per
unit tax on flavored yogurt.
a. What is the pre-tax equilibrium price and quantity of flavored yogurt?
b. What is the post-tax equilibrium price and quantity of flavored yogurt?
c. How much of this tax is borne by the producers?
2. Consider a perfectly competitive labor market with labor demand Ld=60-W and labor
supply Ls=20+4W.
a. Suppose the government implemented a minimum wage of $12. What is the
impact on average wages and unemployment?
b. Show graphically the impact of imposing a minimum wage of $12 indicating the
size of the deadweight loss
c. Is there a minimum wage the government could set that would not create a
deadweight loss? Explain.
3. Red Mango has a monopoly in the market of frozen yogurt in the Chauncey Square Mall.
The market demand function for Red Mango is Qd=200-2p and the cost function is
C(Q)=40Q^2.
a. What is Red Mango

Explanation / Answer

1. A. Demand Qd=80-4p and the supply is given by Qs=25+2p

Without tax Equilibrium is Qd=Qs

P= 55/6 = 9.17

Qs=Qd = 43.33

B.

Qd=80-4(2+p) and the supply is given by Qs=25+2p

Equilibrium Qd=Qs

P=49/6 =8.17 Q= 41.33

C. Tax borne by producer

P1= (80-41.33)/4 = 9.67

P2= 8.17

Price borne by producer = price from initial demand curve

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