   Chapter 11.5, Problem 17E ### Mathematical Applications for the ...

11th Edition
Ronald J. Harshbarger + 1 other
ISBN: 9781305108042

#### Solutions

Chapter
Section ### Mathematical Applications for the ...

11th Edition
Ronald J. Harshbarger + 1 other
ISBN: 9781305108042
Textbook Problem

# In Problems 15-24, p is the price per unit in dollars and q is the number of units.If the demand and supply functions for a product are p =   800   — 2 q  and  p   — 100   +   0.5 q , respectively, find the tax per unit t that will maximize the tax revenue T.

To determine

To calculate: The tax per item that will maximize the total tax revenue if the demand function for a fixed period of time is given by p=8002q and the supply function before taxation is p=100+0.5q.

Explanation

Given Information:

The provided expression is the demand function for a fixed period of time is given by p=8002q and the supply function before taxation is p=100+0.5q.

Formula Used:

The following procedure are used to maximizing total tax revenue,

Step-1 Write the supply function after taxation,

Step-2 Equate the demand function and new supply function to get number of units and tax.

Step-3 Calculate the total revue function T that will be product of number of units and tax.

Step-4 Calculate the derivative of revenue function and set equal to zero and solve.

Step-5 Calculate second derivative test to verify the result.

Calculation:

The provided expression is p=100+0.5q,

After the taxation, the supply function is equal to p=100+0.5q+t. The demand function will meet the new supply function is:

Put the new supply(after taxation) equal to the demand.

100+0.5q+t=8002q

Solve to equation further to get the value of t,

Add 2q-800 on both the sides,

100+0.5q+t+(2q800)=8002q+(2q800)t+(2.5q700)=0

Deduct t from both the sides,

t+(2.5q700)t=0t

Multiply by -1 on both the sides,

(2.5q700)=t

Then, compute the total tax by the formula T=tq,

T=q(2.5q700)=(2.5q2+700q)

Tax is maximized as follows:

The first derivative of T=(2

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