Question

Suppose that the cost function of a firm is C(q)=4q. Suppose that this is the only firm in the market, and demand is Q(p)=10-p. What is the Consumer Surplus in a competitive outcome in this economy if the government imposes an advalorem tax of 20% (this means that if the firm sells at price p, the government receives 0.2p per unit sold)?

		18
		17.5
		12.5
		19.5
		17

Answer 1