SOLUTION: 2. Let P = 0.09q + 50 be the supply equation for a manufacturer. The demand equation for his product is: P = 0.07q + 65 i. If a tax of N1.50/unit is to be imposed on the manufa

Question 1107584: 2. Let P = 0.09q + 50 be the supply equation for a manufacturer. The demand equation for his product is:
P = 0.07q + 65
i. If a tax of N1.50/unit is to be imposed on the manufacturer, how will the original equilibrium price be affected if the demand remains the same?
ii. Determine the total revenue obtained by the manufacturer at the equilibrium point, both before and after the tax.

Answer by Boreal(15235) (Show Source): You can put this solution on YOUR website!
Look first at the equilibrium price
0.09q+50=0.07q +65
0.02q=15
q=750, with P of 0.07(750)+65=117.5 (and P of 0.09(750)+50=117.5)
The equilibrium price is 117.50 and the demand and supply are both 750.
=
The revenue is 117.5*750=$88,125
=
If a tax of 1.5 is imposed, then supply function is p-1.5=0.09q+50
p=0.09q+51.5
now set them equal
0.09q+51.5=0.07q+65
0.02q=13.5
q=675
=
0.07(675)+65=112.25, so the new equilibrium price has fallen.
The revenue is $75,937.50

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