Profit-Maximizing Output with a Corrective Tax
A firm producing widgets faces the marginal private costs for production shown in the table below. The market price for widgets is stable at $50 per unit. To account for pollution, the government imposes a tax of $15 per unit on producers.
| Quantity (units) | Marginal Private Cost ($) |
|---|---|
| 1000 | 20 |
| 2000 | 35 |
| 3000 | 50 |
| 4000 | 65 |
After the tax is implemented, what is the new profit-maximizing quantity of widgets for this firm to supply? Explain your reasoning based on the principle of profit maximization.
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Graphical Analysis of a Corrective Tax on the Banana Market (Figure 10.4)
Profit-Maximizing Output with a Corrective Tax
A company that grows and sells bananas operates in a market where the price is stable at $400 per ton. To maximize its profit, the company produces at a level where its marginal private cost of production equals the market price. The government then imposes a new tax of $105 per ton on banana producers. To continue maximizing profit under this new condition, what must be true about the company's new output level?
Calculating the Profit-Maximizing Condition with a New Tax
A banana producer operates in a market where the price is $400 per ton. The government imposes a corrective tax of $105 per ton on producers. To maximize profit after the tax, the producer will adjust their output to a level where their marginal private cost equals $505.
A banana producer operates in a market where the price is $400 per ton. The government imposes a corrective tax of $105 per ton on producers. To maximize profit after the tax, the producer will adjust their output to a level where their marginal private cost equals $505.
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