XYZ Enterprises Company has a cost function represented by TC = 400 + Q06 and it faces a perfectly competitive price of $ 20 for its output. Required: Calculate the company's competitive output level. Given that the company is exerting a negative externality and its total social cost of Production is estimated to be TSC = Q0.4. If market price remains the same at $ 20, calculate the socially optimal level of production for ABC Ltd Company. If the government imposes an excise tax to bring about optimal level of production, calculate the level of tax to be imposed in such a case How much tax revenue would the government raise in this situation from this Company?
1. XYZ Enterprises Company has a cost function represented by TC = 400 + Q06 and it faces a
Required:
- Calculate the company's competitive output level.
- Given that the company is exerting a negative externality and its total
social cost of Production is estimated to be TSC = Q0.4. If market price remains the same at $ 20, calculate the socially optimal level of production for ABC Ltd Company. - If the government imposes an excise tax to bring about optimal level of production, calculate the level of tax to be imposed in such a case
- How much tax revenue would the government raise in this situation from this Company?
2. The government desires to construct a bypass road to ease congestion in that area. It conducts a survey that entailed three groups of individuals and came up with three demand equations as given below:
Groupl: D1=20-0.2P1
Group2: D2= 35 - 0.5P2
Group3: D3=40-0.8P3
Where D is the size of the road and P is group contribution.
If the cost of constructing the road is 5 billion;
i) Explain why the road may not be constructed
ii) What is the optimal size of the road to be constructed
iii) Determine each group contribution
3. A steel producing firm has a demand fianction given as P = 30 - Q. the cost function facing the firm is given as and C = 200+ Q2. This firm emit its waste into a river and it cost the fish farmers C = 20 + 2.5Q2 to clean the river.
Required
i)
ii) Socially efficient equilibrium price and quantity
iii) Amount of Corrective [Pigovian] tax per unit
3. The private marginal Benefit (PMB) for cassava is given by 30-3X, where X is the number of cassava consumed. Private Marginal Cost (PMC) of producing cassava is the same at $15. For each cassava produced, external cost of $6 is imposed on members of xyz village.
Required.
i) Without government intervention, how much of cassava is produced?
ii) What is the efficient level of cassava production?
iii) What is the gain to society involved in moving from the inefficient to efficient level of production?
iv) . Suggest a pigouvian tax that would lead to efficient level of production.
v) . How much revenue would the tax raise?
4. Kenyatta University Enterprises Company has a cost function represented by TC = 400 + Q0.6 and it faces a perfectly competitive price of $20 for its output.
Required:
(i) Calculate the company's competitive output level
(ii) Given that the company is exerting a negative externality and its total social cost of production is estimated to be TSC = Q0.4 If market price remains the same at $20, calculate the socially optimal level of production for ABC Ltd Company.
(iii) If the government imposes an excise tax to bring about optimal level of production, calculate the level of tax to be imposed in such a case
(iv) How much tax revenue would the government raise in this situation from this Company?
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