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problem set 6

# problem set 6 - Economics 100B Problem 1 Homework 6...

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Economics 100B Homework 6 – Solutions Fall 08-09 Problem 1 Q D = 1000 ! 10 P Q S = 10 + 200 P a. Q D = Q S 1000 ! 10 P = 10 + 200 P 210 P = 990 P = 33 7 Q = 10 + 200 33 7 " # \$ % & = 6670 7 b. MC rises by the amount of the per-unit tax, so we need to add \$1 to the price charged by the producer for any given quantity. We first need to work with the inverse supply curve: Q S = 10 + 200 P 200 P = Q S ! 10 P = Q S ! 10 200 With the tax: P = Q S T ! 10 200 + 1 = Q S T + 190 200 The supply curve with the tax: 200 P = Q S T + 190 Q S T = 200 P ! 190 Q D = Q S T 1000 ! 10 P = 200 P ! 190 210 P = 1190 P = 17 3 Q = 200 17 3 " # \$ % & ! 190 = 2830 3 c. The consumers price rises from 33 7 to 17 3 which is an increase of 20 21 .

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The price received by producers (after they pay the tax) falls from 33 7 to 17 3 ! 1 = 14 3 which is an decrease of 1 21 . The consumer’s share is 20 21 and the producer’s share is 1 21 . d. The long run supply curve is horizontal, P = 33 7 . e. The \$1 per unit tax will shift the average total cost curve up by \$1. The minimum of this curve will also increase by \$1. The new long run supply curve will be P = 33 7 + 1 = 40 7 .
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