Q: Refer to the third diagram. What happens to the equilibrium quantity after the tax is imposed?

It decreases from $$6$$ \text{ million} to $$4.5$$ \text{ million}

Question 1

Suppose the government imposes a $4 per unit tax on a good, as shown in the first diagram. What is the deadweight loss caused by the tax?

Accepted Answer

$$E + F$$

Question 2

Refer to the first diagram. After the $4 tax is imposed, what is the new consumer surplus?

Accepted Answer

$$A$$

Question 3

In the first diagram, what is the total tax revenue collected by the government after the tax is imposed?

Accepted Answer

$$E + F$$

Question 4

Refer to the second diagram. At what quantity does the firm maximize profit in a perfectly competitive market?

Accepted Answer

$$11$$

Question 5

In the second diagram, at the profit-maximizing output, what is the relationship between marginal cost (MC) and marginal revenue (MR)?

Accepted Answer

$$MC = MR$$

Question 6

In the third diagram, what is the government's tax revenue after the tax is imposed?

Accepted Answer

$$4.5$$ 	ext{ million}$

Question 7

Using the third diagram, what is the per-unit tax imposed by the government?

Accepted Answer

$$2.75 - 2.00 = 0.75$$

Question 8

Suppose the government wants to maximize tax revenue without causing deadweight loss. According to the first diagram, under what condition would this be possible?

Accepted Answer

If either demand or supply is perfectly inelastic

Question 9

In the second diagram, at what quantity does the average total cost (ATC) reach its minimum?

Accepted Answer

$$10$$

Question 10

Refer to the third diagram. What happens to the equilibrium quantity after the tax is imposed?

Accepted Answer

It decreases from $$6$$ 	ext{ million} to $$4.5$$ 	ext{ million}

Question 11

In the first diagram, which area represents the loss in producer surplus due to the tax?

Accepted Answer

$$C + F$$

Question 12

In the second diagram, if the market price falls below the minimum average variable cost (AVC), what should the firm do in the short run?

Accepted Answer

Shut down production

Question 13

Based on the third diagram, what is the price buyers pay after the tax is imposed?

Accepted Answer

$$2.75$$

Question 14

In the first diagram, what is the price sellers receive after the tax is imposed?

Accepted Answer

$$4$$

Question 15

In the second diagram, if the marginal cost (MC) is above the marginal revenue (MR) at a given quantity, what should the firm do to maximize profit?

Accepted Answer

Decrease output

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