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e. d. What price will sellers receive (net price) per gallon after the tax? How much revenue will this tax raise for the government? Revenue collected by government is $732. f. How much of the tax burden is borne by buyers? How much is borne by sellers?

e. d. What price will sellers receive (net price) per gallon after the tax? How much revenue will this tax raise for the government? Revenue collected by government is $732. f. How much of the tax burden is borne by buyers? How much is borne by sellers?

Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter9: Price Takers And The Competitive Process
Section: Chapter Questions
Problem 15CQ
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f. Combine the total revenue function from problem 1 and total cost function from this problem and derive the profit-maximizing level of output and the price that would be charged. g. Why is the output level at this point smaller than the output level that maximizes total revenue? Problem 3: Squeak eClean produces commercial sanitizer used to clean tanker trucks that haul liquid food products such as milk. This sanitizer a commodity like any other and at the wholesale level, there are many domestic and foreign producers that compete vigorously. Suppose you have the following estimated market demand and supply functions for the sanitizer. Qd=248.08 +2.2Y-0.6Pc+1.2 Ps - 4P Qs = 10 +2P In these equations, Q measures output in gallons per month (in 1,000's), P is the price per gallon of the sanitizer, Y is annual average household income (in 1,000's), Pc is an index of commodity prices, and Ps is the average price per gallon of other types of sanitizer. After gathering the latest data, you find that average household income is $36,400, the current level of the commodity price index is 110.6, and the average price per gallon of other types of sanitizers is $48.50. a. Find the current equilibrium price and quantity in this market. Qd=248.08+(2.2×36,400)-(0.6×110.6)+(1.2×48.50)-4P =248.08+80,080-66.36+58.2-4P -80,319.92-4P Now, determine the equilibrium price (P) by equating the market demand with the market supply function. 80,319.92-4P=-10P+2P 6P -80,329.92 P=13,388.32 Determine the equilibrium quantity (Q) by substituting the value of Q in the market supply function. Qs=-10+2P 4
Transcribed Image Text:f. Combine the total revenue function from problem 1 and total cost function from this problem and derive the profit-maximizing level of output and the price that would be charged. g. Why is the output level at this point smaller than the output level that maximizes total revenue? Problem 3: Squeak eClean produces commercial sanitizer used to clean tanker trucks that haul liquid food products such as milk. This sanitizer a commodity like any other and at the wholesale level, there are many domestic and foreign producers that compete vigorously. Suppose you have the following estimated market demand and supply functions for the sanitizer. Qd=248.08 +2.2Y-0.6Pc+1.2 Ps - 4P Qs = 10 +2P In these equations, Q measures output in gallons per month (in 1,000's), P is the price per gallon of the sanitizer, Y is annual average household income (in 1,000's), Pc is an index of commodity prices, and Ps is the average price per gallon of other types of sanitizer. After gathering the latest data, you find that average household income is $36,400, the current level of the commodity price index is 110.6, and the average price per gallon of other types of sanitizers is $48.50. a. Find the current equilibrium price and quantity in this market. Qd=248.08+(2.2×36,400)-(0.6×110.6)+(1.2×48.50)-4P =248.08+80,080-66.36+58.2-4P -80,319.92-4P Now, determine the equilibrium price (P) by equating the market demand with the market supply function. 80,319.92-4P=-10P+2P 6P -80,329.92 P=13,388.32 Determine the equilibrium quantity (Q) by substituting the value of Q in the market supply function. Qs=-10+2P 4
=−10+(2×13,388.32) =-10+26,776.64 =26,766.64 The equilibrium price and quantity are $13,388.32 and 26,766.64 respectively. b. Find the equilibrium price and quantity in this market if the government imposes a $9 per gallon tax on sanitizers. Qs -10+2P+9 -1+2P Determine the new equilibrium price (P) by equating the market demand with the new market supply function. 80,319.92-4P = -1+2P -6P = 80,320.92 P = 13,386.82 Determine the new equilibrium quantity (Q) by substituting the value of Q in the new market supply function. Qs -1+(2×13,386.82) =- =-1+26,773.64 =26,772.64 The new equilibrium price and quantity are $13,386.82 and 26,772.64 respectively. c. What will happen to the price buyers pay per gallon as a result of the tax? After the tax is imposed, the price paid by the buyers falls. Before the tax, the price paid by the buyers is $13,388.32 and after the tax, the price paid by the buyers falls to $13,386.82. d. What price will sellers receive (net price) per gallon after the tax? e. How much revenue will this tax raise for the government? Revenue collected by government is $732. f. How much of the tax burden is borne by buyers? How much is borne by sellers? The tax burden on consumer and seller is $4.665 and $4.335 respectively 5
Transcribed Image Text:=−10+(2×13,388.32) =-10+26,776.64 =26,766.64 The equilibrium price and quantity are $13,388.32 and 26,766.64 respectively. b. Find the equilibrium price and quantity in this market if the government imposes a $9 per gallon tax on sanitizers. Qs -10+2P+9 -1+2P Determine the new equilibrium price (P) by equating the market demand with the new market supply function. 80,319.92-4P = -1+2P -6P = 80,320.92 P = 13,386.82 Determine the new equilibrium quantity (Q) by substituting the value of Q in the new market supply function. Qs -1+(2×13,386.82) =- =-1+26,773.64 =26,772.64 The new equilibrium price and quantity are $13,386.82 and 26,772.64 respectively. c. What will happen to the price buyers pay per gallon as a result of the tax? After the tax is imposed, the price paid by the buyers falls. Before the tax, the price paid by the buyers is $13,388.32 and after the tax, the price paid by the buyers falls to $13,386.82. d. What price will sellers receive (net price) per gallon after the tax? e. How much revenue will this tax raise for the government? Revenue collected by government is $732. f. How much of the tax burden is borne by buyers? How much is borne by sellers? The tax burden on consumer and seller is $4.665 and $4.335 respectively 5
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