Q1) Demand curve faced by firm is given by P = 1300-5q. Firm's marginal cost is given by MC(q) = 100 +20q.
a. Solve for the profit maximizing price/output level pair.
b. Assume government imposed a lump sum tax on this firm equal to 5000 as long as firm has positive production (the tax equals zero if firm has produces zero). What would be new price/output level pair?
c. Rather than lump sum tax, now assume that government were to impose tax of 300 per unit. Again, determine profit maximizing price/output level pair?