= = There are n firms in a competitive industry. The market demand function is given by p 50 2Q. A firm's cost function is C (q) = q². The total surplus is given by S₁ 502 Suppose the government imposes a per-unit tax t > 0 on consumers. That is, for each unit of goods purchased, the consumer pays p +t. As a result, the market demand function becomes p+t = 50 - 2Q. The tax goes to the government and firms only receive p for each unit of output sold. So the profit of a firm is pq q². Derive the total surplus, denoted by S₂. Is S₂ > S₁? Explain the intuition of your answer.

= = There are n firms in a competitive industry. The market demand function is given by p 50 2Q. A firm's cost function is C (q) = q². The total surplus is given by S₁ 502 Suppose the government imposes a per-unit tax t > 0 on consumers. That is, for each unit of goods purchased, the consumer pays p +t. As a result, the market demand function becomes p+t = 50 - 2Q. The tax goes to the government and firms only receive p for each unit of output sold. So the profit of a firm is pq q². Derive the total surplus, denoted by S₂. Is S₂ > S₁? Explain the intuition of your answer.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter11: Price And Output Determination: Monopoly And Dominant Firms

Section: Chapter Questions

Problem 3E

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