A company of product a lately knew through its membership-based trade group that the government is thinking of placing a flat tax of $1.46 per unit produced and sold to raise tax revenue. Given the current competitive climate, the manufacturer is concerned with passing on this tax increase to consumers. You were recently hired as a retail marketing analyst for this firm. Your first significant responsibility is to draft a short response to the Director of Marketing concerning the ability of the firm to pass on the tax increase to consumers and, if the firm can do that, what percentage of the tax would be passed onto consumers and what percentage of the tax may be paid by the company.

Requirement The director of marketing provided you with the following historical information to determine the tax allocation: the historical price elasticity of demand of consumers is 0.78, and the historical price elasticity of supply for the product is 1.13?