A medical device manufacturer sells its sterilization equipment in a market with an inverse demand curve of P = 6,000 - 400Q, where Q measures the number of sterilizers in thousands and P is the price per unit. Suppose the Patient Protection and Affordable Care Act levies a tax on medical devices. Assume the tax raises the marginal cost of production from $4,000 to $4,400. After the tax, the profit-maximizing price ____ by $____.

Question

Quizplus · Accepted Answer

The tax raises the marginal cost of production, which shifts the supply curve to the left. This leads to a higher equilibrium price and a lower equilibrium quantity. The profit-maximizing price increases by $200.

A Medical Device Manufacturer Sells Its Sterilization Equipment in a Market