1. Brad and Angelina have rented a banquet hall to host a party in celebration of their wedding anniversary.  You are not one the invitation list.  Fifty people have already accepted their invitation.  Given that number the caterers will charge $4,000 for food and $1,000 for drinks.  The band will cost $3,000 and renting the hall will cost $1,000.  Now, Brad and Angelina are thinking about inviting you and 19 of your friends.  By how much will the extra guests increase the cost of the party.

2. Consider the market for cigarettes.  The demand and supply for cigarettes is given by:

Q_d = 286 - 80P                       Q_s = -80 + 40P,

where Q is the quantity of packs of cigarettes and P is the price of a pack.

a. Draw the market diagram and calculate the equilibrium price and quantity, and total welfare in the market (graph at end of answer).

b. In an effort to reduce cigarette consumption, the government decides to impose a per-unit producer tax of $1 on each pack of cigarettes.  Calculate the new market price and quantity.

c. Rather than a per-unit tax, suppose the government imposes a tax of 42% paid by consumers.  Calculate the new market price and output now.