Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Textbook Question
Chapter 19, Problem 19.1P
A firm in a
a. If the market
b. Suppose a government study has found that the firm’snew process is polluting the air and estimates the socialmarginal cost of widget production by this firm to be. If the market price is still $20, what is thesocially optimal level of production for the firm? Whatshould be the rate of a government-imposed excise tax tobring about this optimal level of production?
c. Graph your results.
a)
Expert Solution
To determine
To find: The number of widgets produced by the firm.
Explanation of Solution
The profit maximizing situation exists at the level where market price is equal to the marginal cost.
Thus, P = MC
b)
Expert Solution
To determine
To find: The socially optimal level of production and rate of tax.
Explanation of Solution
The socially optimal level exists at, P = SMC
Given SMC = 0.5q
The socially optimal level exists at q = 40 widgets.
So the excise tax, T = 20 − 16 = $4
Thus, $4 tax should be applied to bring the optimal level of production.
c)
Expert Solution
To determine
To find: The graph for the calculated results.
Explanation of Solution
Below graph shows the price and marginal cost on vertical axis while the quantity is on horizontal axis. Moreover, the gap between MC and SMC shows the tax imposed by the government.
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Students have asked these similar questions
10.As COVID-19 came about, consumers' relationship with toilet
paper changed and they found themselves desiring more than
usual. Eventually, toilet paper producers saw an opportunity to
make more money and meet the growing demand. Which best
describes this scenario as depicted in Snell's 2020 article?
A. The demand curve shifted left and the supply curve shifted left
B. The demand curve shifted left and the supply curve shifted right
C. The demand curve shifted right and the supply curve shifted left
D. The demand curve shifted right and the supply curve shifted right
5. Supply and Demand. The graph below shows supply and demand curves for
annual medical office visits. Using this graph, answer the questions below.
P↑
$180
$150
$120
$90
$60
$30
4
8
12 16 20 24 28 32 36
a. If the market were free from government regulation, what would be the
equilibrium price and quantity?
b. Calculate total expenditures on office visits with this equilibrium price and quantity.
c. If the government subsidized office visits and required that all consumers were to
pay $30 per visit no matter what the actual cost, how many visits would consumers
demand?
d. What payment per visit would doctors require in order to supply that quantity of
visits?
e. Calculate total expenditures on office visits under the condition of this $30 co-
payment.
f. How do total expenditures with a co-payment of $30 compare to total expenditures
without government involvement? Provide a numerical answer. Show your work.
4. The table below shows the labor requirements for Mr. and Mrs.
Howell for pineapples and coconuts. Which is the most accurate
statement?
A. Mrs. Howell has a comparative advantage in coconuts and the
opportunity cost of 1 coconut for Mrs. Howell is 4 pineapples
B. Mrs. Howell has a comparative advantage in pineapples and the
opportunity cost of 1 pineapple for Mrs. Howell is .25 coconuts.
C. Mr. Howell has a comparative advantage in pineapples and the
opportunity cost of 1 pineapple is 1 coconut.
D. Mr. Howell has a comparative advantage in both pineapples and
coconuts and should specialize in pineapples.
Labor Requirements for Pineapples and Coconuts
1 Pineapple
1 Coconut
Mr. Howell
1 hour
1 hour
Mrs. Howell
1/2 hour
2 hours
Chapter 19 Solutions
Microeconomic Theory
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