Chapter 11.5, Problem 20E

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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 monthly demand function is

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

Explanation

**Given Information:**

The provided expression is the demand function for a fixed period of time is given by

**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

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

After the taxation, the supply function is equal to

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

Solve to equation further to get the value of *t,*

Add

Deduct *t* from both the sides,

Multiply by *-1* on both the sides,

Then, compute the total tax by the formula

Sect-11.1 P-1CPSect-11.1 P-2CPSect-11.1 P-3CPSect-11.1 P-4CPSect-11.1 P-1ESect-11.1 P-2ESect-11.1 P-3ESect-11.1 P-4ESect-11.1 P-5ESect-11.1 P-6E

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