Scenario 10.3:
The demand curve and marginal revenue curve for red herrings are given as follows:
Q = 250 - 5P
MR = 50 - 0.4Q
-Refer to Scenario 10.3. Suppose that a tax of $5 per unit of output is imposed on red herring producers. The price of red herring will:

Question

Quizplus · Accepted Answer

The imposition of a tax on producers shifts the supply curve upwards by the amount of the tax. This does not translate into a one-to-one increase in price for consumers because the market will reach a new equilibrium at a lower quantity and a higher price, but the price increase is typically less than the tax amount due to the shared burden between producers and consumers.

Scenario 10.3: The Demand Curve and Marginal Revenue Curve for Red Herrings