Given that demand for a good X is equal to $q_D=393-2p$ and market supply is $q_S=p/4-12$. Find equilibrium price and quantity, consumer and producer surplus and draw a diagram illustrating the situation. Given that:

a) $T=20\% \pi$, total profit is taxed

b) $T=200$ tax does not depend on volume and value of goods sold

will it be simply $$393-2p=p/4-12-200$$ ? Obviously i need to find $p$.

Obviously i have calculated the equilibrium price and quantity before taxation that is $p=180,q=33$. How to find situation after taxation in those two cases?

  • $\begingroup$ Assuming a competitive market, the supply price for a given quantity should be equal to the marginal cost, and the marginal profit should be zero. This does not change with either a lump-sum tax or a percentage profit tax, with the same price and quantity giving a zero marginal profit. What will change is the producer surplus. $\endgroup$ – Henry Jan 12 '16 at 14:36
  • $\begingroup$ Could you be more specific? i do not think i get it $\endgroup$ – mkropkowski Jan 12 '16 at 14:42

$$393 − 2p = \frac p 4 − 12 − 200 - 0.2 \cdot \text{profit} .$$

  • $\begingroup$ I do not understand your answer if possible please clarify what you mean. $\endgroup$ – mkropkowski Jan 12 '16 at 12:52
  • $\begingroup$ The problem is poorly stated and you did the best you could. $\endgroup$ – D J Sims Jan 12 '16 at 14:08
  • $\begingroup$ I know it is poorly stated, but i have no idea what to do with 20% of profits tax still you do not answer my question fully. $\endgroup$ – mkropkowski Jan 12 '16 at 14:42
  • $\begingroup$ Just subtract it from the right side. $\endgroup$ – D J Sims Jan 12 '16 at 16:49
  • 1
    $\begingroup$ What is the purpose then of you answering this question? Why you substract 200 as it is a separate case that should not be included in the latter one. I would strongly advice you to know the answer for the question before you post an answer that is not a proper answer. $\endgroup$ – mkropkowski Jan 12 '16 at 17:29

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