Assume a competitive firm faces a market price of ?$80?, a cost curve? of: C? =

Question

Assume a competitive firm faces a market price of ?$80?, a cost curve? of:

C? = 0.003q3 ?+ 25q ?+ 750?,

and a marginal cost curve ? of:

MC? = 0.009q2 + 25.

If a specific tax of ?$7 per unit is? implemented, what would be the new equilibrium output? level?

- It would be _____________ units. ?(round your answer to two decimal places?)

?If, instead, a lump sum tax of ?$547 is? implemented, what would be the new equilibrium output? level?

- It would be _______units. ?(round your answer to two decimal places?)

Explanation / Answer

With tax MC becomes

MC= 0.009q^2 + 25 + 7

At equilibrium P=MC and P= 80

0.009q^2+25+7= 80

0.0 009q^2 = 48

q^2= 5333.33

q= 73.029

= 73.03

New output is 73.03

Lum sum tax does effect MC.

At equilibrium MC=P

0.009 q^2 +25 = 80

q^2 = 6111.11

q= 78.173

= 78.17

It would be 78.17

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