ANSWERS+TO+EVEN-c7

# Managerial Economics

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ANSWERS TO EVEN-NUMBERED PROBLEMS-c7 2. a. At harvest time, supply is fixed (regardless of the price) so the supply curve is nearly vertical. b. At the beginning of the growing season, supply is quite flexible implying an upward-sloping supply curve. c. In the long run, the supply curve is nearly horizontal. 4. a. Setting the demand and supply equations equal to one another, we have 200 - .2Q = 100 + .3Q or Q = 200. In turn, we find P = 160. b. If a tax of \$20 per unit is levied on suppliers, the industry supply curve undergoes a parallel upward shift. Increasing the curve's price intercept by 20 implies P = 120 + .3Q. Setting the demand curve equal to the new supply curve implies 200 - .2Q = 120 + .3Q or Q = 160. Consumers pay the price: P = 200 - (.2)(160) = \$168. Eight dollars of the \$20 tax increase (or 40%) has been passed on to consumers. The price that producers receive (net of the tax) is \$148. c. If a tax of \$20 per unit is levied on consumers, the demand curve undergoes a parallel downward shift and becomes P = 180 - .2Q. Setting the new demand curve equal to the supply curve, we have 180 .2Q = 100 + .3Q or

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ANSWERS+TO+EVEN-c7 - ANSWERS TO EVEN-NUMBERED PROBLEMS-c7 2...

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