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?
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?
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Get started for freeUniversal 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?
A firm faces a demand curve given by \\[ q=\mathbf{1 0 0}-2 R \\] Marginal and average costs for the firm are constant at \(\$ 10\) per unit a. What output level should the firm produce to maximize profits? What are profits at that output level? b. What output level should the firm produce to maximize revenues? What are profits at that output level? c. Suppose the firm wishes to maximize revenues subject to the constraint that it earn \(\$ 12\) in profits for each of the 64 machines it employs. What level of output should it produce? d. Graph your results.
This problem concerns the relationship between demand and marginal revenue curves for a few functional forms. Show that: a. for a linear demand curve, the marginal revenue curve bisects the distance between the vertical axis and the demand curve for any price. b. for any linear demand curve, the vertical distance between the demand and marginal revenue curves is \(-V b \cdot q,\) where \(b(<0)\) is the slope of the demand curve. c. for a constant elasticity demand curve of the form \(q=a P^{\prime},\) the vertical distance between the demand and marginal revenue curves is a constant ratio of the height of the demand curve, with this constant depending on the price elasticity of demand. d. for any downward-sloping demand curve, the vertical distance between the demand and marginal revenue curves at any point can be found by using a linear approximation to the demand curve at that point and applying the procedure described in part (b). e. Graph the results of parts (a) through (d) of this problem.
The production function for a firm in the business of calculator assembly is given by \\[ q=2 V L \\] where \(q\) is finished calculator output and \(L\) represents hours of labor input. The firm is a price taker for both calculators (which sell for \(P\) ) and workers (which can be hired at a wage rate of \(w \text { per hour })\) a. What is the supply function for assembled calculators \([q=f(P, w)] ?\) b. Explain both algebraically and graphically why this supply function is homogeneous of degree zero in \(P\) and \(w\) and why profits are homogeneous of degree one in these vari ables. c. Show explicitly how changes in \(w\) shift the supply curve for this firm.
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.
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