Chapter 13: Problem 2
Would a lump-sum profits tax affect the profit-maximizing quantity of output? How about a proportional tax on profits? How about a tax assessed on each unit of output?
/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none}
Learning Materials
Features
Discover
Chapter 13: Problem 2
Would a lump-sum profits tax affect the profit-maximizing quantity of output? How about a proportional tax on profits? How about a tax assessed on each unit of output?
All the tools & learning materials you need for study success - in one app.
Get started for free
Suppose a firm engaged in the illegal copying of computer CDs has a daily short-run total cost function given by \\[ S T C=q^{2}+25 \\] a. If illegal computer CDs sell for \(\$ 20\), how many will the firm copy each day? What will its profits be? b. What is the firm's short-run producer surplus at \(P=\$ 20 ?\) c. Develop a general expression for this firm's producer surplus as a function of the price of illegal CDs.
John's Lawn Moving Service is a small business that acts as a price taker (i.e., \(M R=P\) ). The prevailing market price of lawn mowing is \(\$ 20\) per acre. John's costs are given by \\[ \text { total cost }=. l q^{2}+l O q+50 \\] where \(q=\) the number of acres John chooses to cut a day. a. How many acres should John choose to cut in order to maximize profit? b. Calculate John's maximum daily profit. c. Graph these results and label John's supply curve.
In Example \(13.3,\) we computed the general short-run total cost curve for Hamburger Heaven as \\[ 400 \\] a. Assuming this establishment takes the price of hamburgers as given \((P),\) calculate its profit function (see the extensions to Chapter 13 ), \(I T^{*}(P, V, W)\) b. Show that the supply function calculated in Example 13.3 can be calculated as \(d T T^{*} / d P=\) \(q(\text { for } w=v-4)\) c. Show that the firm's demand for workers, \(L\), is given by \(-d i T^{*} / d w\) d. Show that the producer surplus calculated in Example 13.5 can be computed as e. Show how the approach used in part (d) can be used to evaluate the increase in pro ducer surplus (and in short-run profits) if Prises from \(\$ 1\) to \(\$ 1.50\)
Universal Widget produces high-quality widgets at its plant in Gulch, Nevada, for sale throughout the world. The cost function for total widget production \((q)\) is given by total cost \(=.25 q^{2}\) Widgets are demanded only in Australia (where the demand curve is given by \(q=100-2 P\) ) and Lapland (where the demand curve is given by \(q=100-4 P\) ). If Universal Widget can control the quantities supplied to each market, how many should it sell in each location in order to maximize total profits? What price will be charged in each location?
Suppose a firm faces a constant elasticity demand curve of the form \\[ q=256 \mathrm{P}^{2} \\] and has a marginal cost curve of the form \\[ M C=0.001 q \\] a. Graph these demand and marginal cost curves. b. Calculate the marginal revenue curve associated with the demand curve. Graph this curve c. \(\quad\) At what output level does marginal revenue equal marginal cost?
What do you think about this solution?
We value your feedback to improve our textbook solutions.