(Advanced analysis)Answer the question on the basis of the following information: The equations for the demand and supply curves for a particular product are P = 10 - .4Q and P = 2 + .4Q,where P is price and Q is quantity expressed in units of 100.After an excise tax is imposed on the product,the supply equation is P = 3 + .4Q. Refer to the given information.Government's revenue from this tax is:

Question

Quizplus · Accepted Answer

Before the tax, the equilibrium price and quantity can be found by setting the demand and supply equations equal to each other:
10 - .4Q = 2 + .4Q
8 = .8Q
Q = 10
P = 10 - .4(10) = 6
The equilibrium quantity is 1000 units and the equilibrium price is $6 per unit.

After the tax, the supply equation becomes P = 3 + .4Q. To find the new equilibrium price and quantity, we set this new supply equation equal to the original demand equation (since demand doesn't change with the tax):
10 - .4Q = 3 + .4Q
7 = .8Q
Q = 8.75
P = 3 + .4(8.75) = 6.5
The equilibrium quantity is now 875 units and the equilibrium price is $6.50 per unit.

The difference between the original equilibrium price and the new equilibrium price is the amount of the tax per unit:
$6.50 - $6 = $0.50

To find the government's revenue from the tax, we take the amount of the tax per unit and multiply it by the new equilibrium quantity:
$0.50 per unit * 875 units = $437.50
Since the tax is applied per 100 units, we need to multiply this result by 10 to get the total government revenue:
$437.50 * 10 = $4,375

However, we need to remember that the question is asking for the revenue from the tax, not the total revenue received from sales of the product. The revenue from the tax is only the portion of the price increase that is due to the tax itself, which is half of the total price increase:

$0.50 / 2 * 100 units * 8.75 = $1,500

Therefore, the correct answer is C, $875.

(Advanced Analysis)Answer the Question on the Basis of the Following