Bill’s Bicycle is the monopoly seller of bicycles in the city where it operates. The demand function of bicycles is Q = 200 - 10P. The company’s total cost func- tion is C = 10 + 10Q. Assume the company charges a single, uniform price for every bicycle it sells. a. Calculate the profit-maximizing quantity and price for Bill’s Bicycle Company. b. The government decides to impose a specific tax on bicycles in this city. The amount is τ=2 per bicycle sold and is collected from the seller. Draw a diagram that show the deadweight loss before the imposition of the tax and the deadweight loss after the imposition of the tax.(You do not need to show numerical values in the diagram as long as all the areas are labelled correctly).
Bill’s Bicycle is the
The demand function of bicycles is Q = 200 - 10P. The company’s total cost func-
tion is C = 10 + 10Q. Assume the company charges a single, uniform
every bicycle it sells.
a. Calculate the profit-maximizing quantity and price for Bill’s Bicycle
Company.
b. The government decides to impose a specific tax on bicycles in this
city. The amount is τ=2 per bicycle sold and is collected from the seller. Draw
a diagram that show the
the deadweight loss after the imposition of the tax.(You do not need to show
numerical values in the diagram as long as all the areas are labelled correctly).
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