The Senate committee is working on tax reform for telecommunications services in the USA. After deregulation, the telecom market has become very competitive and the high telecom tax rate (25%) reduces business growth. Estimates indicate that the current monthly demand for telecom services is given by Q^d=300-4P and the market supply is Q^s=3P-120P (both in millions), where P is the monthly price of telecom services. The Commission plans tax reform that would cut a tax rate to 15%, leading to a new supply function Q^s=4P-60. How much will the customer save on average during a month as a result of the proposed legislation? How will tax revenues change?

The Senate committee is working on tax reform for telecommunications services in the USA. After deregulation, the telecom market has become very competitive and the high telecom tax rate (25%) reduces business growth. Estimates indicate that the current monthly demand for telecom services is given by Q^d=300-4P and the market supply is Q^s=3P-120P (both in millions), where P is the monthly price of telecom services. The Commission plans tax reform that would cut a tax rate to 15%, leading to a new supply function Q^s=4P-60. How much will the customer save on average during a month as a result of the proposed legislation? How will tax revenues change?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter12: More Realistic And Complex Pricing

Section: Chapter Questions

Problem 6MC

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