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Hotel rooms in Smalltown go for $120, and 800 rooms are rented on a typical day....

Hotel rooms in Smalltown go for $120, and 800 rooms are rented on a typical day. a. To raise revenue, the mayor decides to charge hotels a tax of $12 per rented room. After the tax is imposed, the going rate for the hotel rooms rises to $128, and the number of rooms rented falls to 700. Calculate the amount of revenue this tax raises for Small town and the deadweight loss of the tax. (Hint: The area of a triangle is ½ X base X height.) b. The mayor now doubles the tax to $24. The price rises to $136, and the number of rooms rented falls to 600. Calculate tax revenue and deadweight loss with this larger tax. Are they double, more than double, or less than double? Explain. c. What are the supply and demand curves underlying the previous problem? You are welcome to list these as inverse supply and demand curves.

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