Question

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the a. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. b. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. c. eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year, d. first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

Answer 1

Answer 1. eighth year after it is imposed than the first year after it is imposed because demand and supply will be less elastic in the first year than the eighth year.

reason- Demand and supply are less elastic in the first year than in the eighth year as more substitutes are available in the long run.

Less elasticity means less fall in equilibrium Quantity and less fall in Deadweight loss.

Answer 2. Long run equilibrium but not in the short run equilibrium

reason- In the long run monopolistic competitive firm earns zero profit and in the Short run firms earn positive profit.

In the figure firm is earning zero profit as P=ATC.

Answer 3. there is insufficient data to determine the profit

reason- Profit=(P-ATC) Q

We know price= MR= $7 and Q= 14 but we do not know ATC. So we cannot determine the profit.

Answer 4. $87

Reason- When $87 tax is imposed, Firm A,B,C will produce 3 units of pollution and Firm D will produce two units of pollution.

So total pollution= 11 units.

Note-According to HOMEWORKLIB RULES first four parts can be answered