Suppose the marginal social cost of television sets is $100. This is constant and equal to the average cost of television sets. The annual demand for television sets is given by the following equation: Q = 200,000 – 500P2. If television sets are sold in a perfectly competitive market, calculate the annual number sold. Under what circumstances will the market equilibrium be efficient?

Question

Suppose the marginal social cost of television sets is $100. This is constant and equal to the average cost of television sets. The annual demand for television sets is given by the following equation: Q = 200,000 – 500P2. If television sets are sold in a perfectly competitive market, calculate the annual number sold. Under what circumstances will the market equilibrium be efficient?

Answer 1

Suppose the corporate income tax were eliminated and corporate income allocated to shareholders on a pro rata basis according to their proportion of outstanding stock. How would such a change in tax policy affect the excess burden and incidence of the tax, assuming that all forms of investment income are included in a comprehensive income tax base?

Answer 2

To calculate the annual number of television sets sold, we need to determine the market equilibrium by setting the demand equal to the supply. In a perfectly competitive market, the equilibrium is reached when the quantity demanded (Q) is equal to the quantity supplied.

The given demand equation is Q = 200,000 – 500P^2, where Q represents the quantity of television sets and P represents the price. To find the equilibrium quantity, we set this equation equal to the supply.

Since the marginal social cost (MSC) is equal to the average cost of television sets in this case, we can assume that the supply curve is represented by the MSC equation. However, the MSC equation is not mentioned in the question. Therefore, we cannot directly calculate the equilibrium quantity without this information.

To determine under what circumstances the market equilibrium will be efficient, we need to consider two conditions:

1. Allocative efficiency: The market equilibrium is allocatively efficient when the price equals the marginal social cost (P = MSC). This ensures that resources are allocated in a way that maximizes social welfare.

2. Productive efficiency: The market equilibrium is productively efficient when the price equals the marginal cost (P = MC). This ensures that resources are being utilized in the most efficient manner.

Without the information about the marginal cost (MC) or the marginal social cost (MSC) equations, we cannot definitively determine when the market equilibrium will be efficient.