Question

4) If the demand function for a fixed period of time is p = 2100 – 39 and the supply function before taxation is p=300 +1.5q, what tax per item will maximize the total tax revenue? What is the maximum tax revenue! I

Answer 1

0 demand function p= 2100 - 3q supply function p= 300 tiisg (before tax) say at equillibrum? demand = supply. 2100-39 300 + 1.sg 2100-300 3 qt lisa 4.5 g 1800 4.5 q q= you tooo yut q= noo p= 2100 - 3 x 400 2100 1200 p= 900 at equillibrium : (nou, goo) Now Assume after tax : t be tax per item: supply + tax demand 300 + los q tt 2100 3q t = 2100 300 - 3 q-15q t - 1800 -4.5q 4.5 q = 1800 t q= 1800 t 4oo t - - - ५.5 प.5 q= you t 4.5 for Tax Revenue quantity & tax amount per item. TR q.t TR t (400-) 4oot

Now, for maximum, find Critical point 2. d TR du d. (4001 di 415 400 d TR dt 26 -4.5 Moo 2 t -4.5 t = 4.5 x 40o 200 x 405 2- 900 it 900 So, 900) tax per item shall maximise tofal tax Revenue. 2 Maximum Tax Revenu 900/ 900) - (9oo) 75 20000 180000 360000 810ooo 4 015 360ooo 180000 TR 180000 ANJ. 110 MAX