Suppose the demand for a product is given by P = 60-2Q

Marketing Jan 11, 2021

Suppose the demand for a product is given by P = 60-2Q. Also, the supply is given by P = 10 + 3Q. If a $10 per-unit excise tax is levied on the buyers of a good, government revenue is equal to

a. $64

b. $20

c. $10

d. $128

e. None of these

Expert Solution

The answer is e).

With the tax, the demand function is P = 50 - 2Q. The equilibrium quantity is given by:

50 - 2Q = 10 + 3Q
40 = 5Q
Q = 8

The amount of government revenue = 8 * 10 = $80.

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