Consider a competitive market for red lentils with10,000 identical farmers, a competitive marketprice of $5 and the following MC for each farmer:MC = $0.5+ $0.05QAlso consider the following market demandfunction:Q_D=1,100,000-40,000Pa) Calculate the optimal level of production (intonnes) for each farmer (show workings).b) Assuming 10,000 lentil farmers of equal size,determine the market supply function and theequilibrium market quantity (show workings).c) Consider that the government now imposes a25% tax on producers, calculate the new marketequilibrium price (two decimal places) and newmarket equilibrium output (two decimal places)(show workings).d) Calculate the value of the deadweight loss forthe consumer and the producer following a 25%tax on red lentils, as well as, the amount ofgovernment revenue.

In economics, deadweight loss is the difference in production and consumption of any given product…

equilibrium market quantity (show workings). c) Consider that the government now imposes a 25% tax on producers, calculate the new market equilibrium price (two decimal places) and new market equilibrium output (two decimal places)

equilibrium market quantity (show workings). c) Consider that the government now imposes a 25% tax on producers, calculate the new market equilibrium price (two decimal places) and new market equilibrium output (two decimal places)

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter4: Demand, Supply, And Market Equilibrium

Section: Chapter Questions

Problem 15P

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Question

Consider a competitive market for red lentils with
10,000 identical farmers, a competitive market
price of $5 and the following MC for each farmer:
MC = $0.5+ $0.05Q
Also consider the following market demand
function:
Q_D=1,100,000-40,000P
a) Calculate the optimal level of production (in
tonnes) for each farmer (show workings).
b) Assuming 10,000 lentil farmers of equal size,
determine the market supply function and the
equilibrium market quantity (show workings).
c) Consider that the government now imposes a
25% tax on producers, calculate the new market
equilibrium price (two decimal places) and new
market equilibrium output (two decimal places)
(show workings).
d) Calculate the value of the deadweight loss for
the consumer and the producer following a 25%
tax on red lentils, as well as, the amount of
government revenue.

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