Question 2You are the manager of medium-sized company that deals in production of make-ups in Ghana.Suppose one morning you heard on the news that the government has imposed a lump sum taxon every unit of make-up sold in the market. In addition, suppose during the same period, theprice of a leading substitute product decreases along with the change the effect of the taxmentioned above, how would you expect the equilibrium price and quantity of make-up tochange assuming the effect of the lump sum tax is larger? [Illustrate by using a graph]. Question 1At the beginning of the year 2021, three friends, Ebo, Michael and Joseph decided to set up acompany that produces a special kind of fruit juice called BB fruit juice in a city called St.Botch. As fresh graduate from the University of Professional Studies, Accra, you wereemployed as the firm's general manager in charge of the day to day running of the company.In order to make informed decisions about the firm's product, you employed an economist,who estimated the demand curve of the firm's product by using information from 30supermarket as follows:= 99.5 – 2.5Px + 1.25P, – 0.21 + 0.15N + 0.04AWhere Qd is the quantity demanded of BB fruit juice in bottles, P, is the per pottle price of BBfruit juice, P, is the per pottle price of Blue Sky, I is the per capita income of the people of St.Botch, N is the number of consumers and A is amount of money the company spends onadvertising.yIn addition, the economist also estimated the supply function for the product as:= -78 + 5.5P, – 1.75P;, + 0.25S + 0.03RWhere Q is the quantity supplied of BB fruit juice in bottles, P is the per pottle price of BBfruit juice, P, is the per unit price of labour, S is the number of suppliers and R is the amountof raw materials used (in kg).Now suppose a bottle of BB fruit juicy is sold for GH¢20, two bottles of Blue Sky are sold forGH¢60, the per capita income of the people of St. Botch is GH¢800, the company spendsGH¢1,000 on advertising. In addition, there are 500 consumers and 40 suppliers, the per unit price oflabour is GH¢40, and a total of 1000kg of raw materials are used for the production.i)Calculate the amount of Botch Potato bought in the market.ii)Estimate the own price elasticity of demand.What type of demand curve does Botch Potato has?ii)What will be the firm's pricing policy?iv)What type of good is BB fruit juice?v)vi)What type of relationship exist between BB fruit juice and Blue Sky?Assess the probable impact on your firm if per capita income of the city isdecreases by 8%.Estimate the demand and supply curves for BB fruit juiceDetermine the equilibrium price and quantity for your product.vii)viii)ix)Sketch the demand and supply curves.х)хі)society.Suppose the government imposes a tax of GH¢2 on every unit of BB fruit juice sold,what will be the new equilibrium price and quantity.Represent the demand curve, old and new supply curves and estimate thedeadweight loss from tax.How would the consumers and producers share the tax?What will be the government tax revenue?Suppose the government set a price ceiling of ¢22 per bottle of BB fruit juice, whatwill be the deadweight loss? [Use graphs to explain]Examine the welfares of the economic agents and hence find the total welfare of thexii)xii)хiv)xV)xvi)Suppose the government set a price floor of ¢30 per bottle of BB fruit juice, what willbe the cost to the government?xvii)

Question

Accepted Answer

The imposition of a tax will raise production costs, lower output, and move the supply curve to the…