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Suppose the government wants to levy a unit-tax t (per litre) on gasoline that would maximize their tax-revenue. If the market for gasoline is expressed
Suppose the government wants to levy a unit-tax t (per litre) on gasoline that would maximize their tax-revenue. If the market for gasoline is expressed as the following what is the revenue maximizing unit-tax t? What is the tax revenue? Demand: QD = 20 - 5p Supply: QS = 5p Demand and supply is in million liters, price and t is in dollars. (Hint: You should first find quantity traded as a function of t, then calculate tax revenue as a function of r. And finally treat t as your decision variable and find the t that maximizes the government's tax revenue.)
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