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got this from my teacher,

A monopolist faces a demand curve given by the following equation: P = $500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost.

and have the answers for most, but can someone give me a bump in the right direction for the follow up -

Now suppose a tax of $100 per unit is imposed. How will this affect the firm’s price?

  • Economics -

    Government adds taxes; prices go up.

  • Economics -

    sorry, i understood that, but as the prices go up the output goes down.

    but how can you recalculate the price. output drops to 15 in an earlier question, but i cant get my head around working out the price

  • Economics -

    I don't know how you can predict or calculate such a thing. Some manufacturers will pass along most/all of the tax, while others will try to absorb as much as possible; still others may decide to shift their focus to other manufacturing areas; and some may decide to reduce their workforce.

    Example: the new tax on manufacture of medical devices.

  • Economics -

    ah ok, i see your point.

    i had worked out that P = $500 - 2xQ(10x20) as MC = MR (100=100), so price was 300 and output 20.

    the tax would mean a reduction in output to 15 units, by my calcs but how can i work out the corresponding price.

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