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3 years ago

Suppose that a $2 per widget tax is levied on the sellers of widgets. How much revenue is collected from this tax on widgets

Business

1 answer:

JulijaS [17]3 years ago

8 0

Complete Question:

The supply and demand for widgets are given by the following equations: Q = 2,000 - 300P QS = -100 +100P A. where P=price per widget and QD and Qs are the quantities of widgets demanded and supplied. Suppose that a $2 per widget tax is levied on the sellers of widgets. How much revenue is collected from this tax on widgets?

Answer:

The revenue collected from this tax on widgets is

$4,200 (2,100 * $2)

Explanation:

a) Data and Calculations:

The demand for widget = Qd = 2000-300P

The supply for widget = Qs = -100+100P

At equilibrium, the price before tax can be calculated as follows:

Qd = Qs --this is the equilibrium condition

Therefore, 2000-300P = -100+100P

or 2000 + 100 = 300P + 100P

that is 2100 = 400P

or 400P = 2100

Therefore, P = 2100/400

Price per unit = $5.25

The revenue collected from this tax on widgets = $2 * 2,100 = $4,200

b) Since the widget tax is levied on the sellers, it implies that the revenue collected from the widget tax will total $4,200 based on the equilibrium quantity of 2,100 widgets.

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Answer:

payback 3.29 years

NPV 87,158.55

Explanation:

PO 27,000

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2400 x 3.5 = 8,400

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The price will increase 0.5

6,900 + 2,400 x 0.5 = 8,100

Cash flow saving Y3 to Y20

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We have an annuity of 18 years for 9,300 cash

And then we have a cash flow of 6,900

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C = 9,300

r = 8%

time = 18

$9,300 \times \frac{1-(1+0.08)^{-18} }{0.08} = PV\\$

PV = 87,158.55

Now this values are years into the future, so we need to bring them to present day.

$\frac{Principal}{(1 + rate)^{time} } = PV$

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6,900/1.08 = 6,388.89

year 2 principal 8,100

$\frac{8,100}{(1 + 0.08)^{2} } = PV$

PV= 5,915.64

year 3 annuity 87,158.55

$\frac{87,158.55}{(1 + 0.08)^{3} } = PV$

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cash flow - investment = net present value

69,189.27 + 5,915.64 + 6,388.89 - 27,000 = 54,493.8

The payback will be the time perdion when the project recovers it initial cost:

we first add the income from the irregular years and subtract from the investment

6,900 + 8,100 = 15,000

27,000 - 15,000 = 12,000

then we use the general formula investment/cash flow per year

12,000/9,300 = 1.29

the project need the first two years and then 1.29 years

2 + 1.29 = 3.29 years

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