Question
In the last exam, we considered the market for beer. There were 10 firms that produced beer in a competitive market and faced a market
In the last exam, we considered the market for beer. There were 10 firms that produced beer in a competitive market and faced a market demand P = 60-2Q. The market supply schedule was P = 0.4Q. a. Resolve for the competitive market equilibrium price and output? Calculate the level of consumer and producer surplus. b. In the past decade plus, there has been a number of high-profile mergers and acquisition that has led to consolidation in the beer industry (link). Suppose the beer industry can be represented as a monopoly. Assuming the marginal cost schedule for the firm is P=0.4Q, what would be the new price and quantity of beer produced in the market? Calculate the level of consumer and producer surplus. c. How large is the deadweight loss in the monopolized market? d. Due to a rising deficit, the government realizes they need additional revenue sources. A popular option to raise revenue is a tax on "sin" goods such as beer or cigarettes. Suppose the government plans to impose a $1 tax on each six pack of beer or pack of cigarette produced. The beer industry is currently monopolized while the cigarette industry is competitive. You may assume that both industries are currently in long run equilibrium. If you are most concerned about consumer welfare, would you suggest a tax on beer or cigarettes? (i.e. In the long run, in which industry does the consumer price rise the least)? If you are most concerned about firm profit, would you suggest a tax on beer or cigarettes? (
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