Assignment 1 Solution

5 into d or s therefore the market equilibrium price

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Unformatted text preview: 2.5 per unit, and 4,532 units could be sold at this price. before-tax price Tax amount After -tax price 562.50 $ price charged 84.38 $ tax amount 646.88 $ total amount paid (d) Compare the two market equilibriums. Which market equilibrium price is lower? Does it mean that the consumer will pay less with the lower price per unit? How much revenue could the produce make in either case? What causes the difference in revenue? At the Market Equilibrium No sales tax With 15% sales tax Price $600 $562.50 Quantity 5,000 units 4,532 units The amount consumer pays $600 $646.88 The revenue supplier realizes $600×5000 = $3,000,000 $562.50×4532 = $2,549,250 The effect of taxation: although the equilibrium is lower by $37.5, the total amount the consumer actually pays is $46.88 higher. On the supplier side, the revenue drops by $450,750 due to the lower price and quantity. (e) Sketch a graph showing the supply function and both demand functions (with and without a sales tax). Also on the graph, indicate the market equilibrium point found in (a) and in (c). Assignment #1 9/28/2010 5 of 7 MGSC 1205 Introduction to Quantitative Methods I Fall 2010 (e) Set the problem in Excel. Find the market equilibrium in (a) using Goal Seek. Attach a hard copy of your result. #4. The market equilibrium for a product occurs when 1 2,000 units are produced at a price of $4.50 per unit . The producer will supply no units at $1 .30, and the consumers will demand no units at $19.5. (a) Sketch a graph showing the supply and demand functions, and indicate the points given in the question. Assignment #1 9/28/2010 6 of 7 MGSC 1205 Introduction to Quantitative Methods I Fall 2010 (b) Assume both supply and demand relationships are linear. Determine the demand and supply functions for the product. Price per unit Demand Supply $4.50 12,000 12,000 $19.5 0 - $1.30 0 The demand function: Substitute into Therefore, the demand function is The supply function: Substitute into Therefore, the demand function is (c) If customers are charged a 13% sales tax on the product, find the new demand function, which relates the before-tax unit price to the quantity sold. The new demand function D’: Assignment #1 9/28/2010 7 of 7...
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This note was uploaded on 01/16/2014 for the course MGSC 1205 taught by Professor Sarhan during the Fall '13 term at Dalhousie.

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