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. The marginal cost of production is constant at $4,000.
a. Solve for the profit-maximizing price and quantity.
b. The Patient Protection and Affordable Care Act, signed into law by President Barack Obama, levies a tax on medical devices. Suppose the tax raises the marginal cost of production from $4,000 to $4,400. What are the new profit-maximizing price and quantity?
c. The law calls for a 2.3% tax on a firm's total revenue, which leaves the marginal cost of production unchanged. This means that marginal revenue with the tax will equal 97.7% of the marginal revenue without the tax, or MR_tax = 0.977MR_{no tax}. What are the profit-maximizing price and quantity under this scenario?

Question

Quizplus · Accepted Answer

The Answer of 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. The marginal cost of production is constant at $4,000. a. Solve for the profit-maximizing price and quantity. b. The Patient Protection and Affordable Care Act, signed into law by President Barack Obama, levies a tax on medical devices. Suppose the tax raises the marginal cost of production from $4,000 to $4,400. What are the new profit-maximizing price and quantity? c. The law calls for a 2.3% tax on a firm's total revenue, which leaves the marginal cost of production unchanged. This means that marginal revenue with the tax will equal 97.7% of the marginal revenue without the tax, or MR_tax = 0.977MR_{no tax}. What are the profit-maximizing price and quantity under this scenario?

A Medical Device Manufacturer Sells Its Sterilization Equipment in a Market