30. Suppose a farmer is a price taker in soybeans with cost functions given by T

Question

30. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 Suppose the farmer has to pay a 10% tax on revenue. The new profit maximizing level of output is

a. unaffected by the tax.

b. increased because of the tax.

c. decreased because of the tax.

30. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 Suppose the farmer has to pay a 10% tax on revenue. The new profit maximizing level of output is

a. unaffected by the tax.

b. increased because of the tax.

c. decreased because of the tax.

Explanation / Answer

The profit maximising level is where Marginal Revenue = Marginal Cost. That is MR - MC = 0. Bt a tax will affect revenue as a result output will have to be reduce at achive the desire profit. Hence profit fall and here it is (c ) decreased because of tax.

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