Answer to Question #291650 in Economics for Ze Deva

Question

Given the demand function Q_d = 40-2p and the supply function 2P-Q = 20. Assume the government impose at a tax of t per unit on quantity supplied and the producer adjust the supply function to include the tax.

a.      Find the tax rate which will maximize the tax revenue?

b.     Find the maximum revenue which can be obtained from taxation?

Answer 1

A) The Tax Rate At Which Tax Revenu Is Maximum is when t = (Pd - Ps) = Q.

(20 - 0.5Q - 10 - 0.5Q) = Q,

Q = t = 5.

B) The Maximum Revenue Which Can Be Obtained From A Function is:

TR = 5×5 = 25.