Hot Air Balloon Rides is a single-price monopoly Columns 1 and 2 of the table se
ID: 1102603 • Letter: H
Question
Hot Air Balloon Rides is a single-price monopoly Columns 1 and 2 of the table set out the market demand schedule and columns Total cost Price (dollars per ride) 150 140 130 120 110 100 Quantity 2 and 3 set out the total cost schedule. per month) per month) 20 60 120 200 300 420 Now suppose that the government places a fixed tax on Hot Air's profit of $30 a month. Calculate Hot Air's new profit-maximizing output and price. When Hot Air is producing its new profit-maximizing output, the number of rides it produces is a month and the profit-maximizing price of a ride is $ . 2 >Answer to 1 decimal place. When the government places a fixed tax on Hot Air's profit of $30 a month, the profit-maximizing output | and the profit-maximizing priceExplanation / Answer
Price Quantity Total Cost TR Profit TC' MR MC MC'(after tax) 150 0 20 0 -20 50 140 1 60 140 80 90 140 40 40 130 2 120 260 140 150 120 60 60 120 3 200 360 160 230 100 80 80 110 4 300 440 140 330 80 100 100 100 5 420 500 80 450 60 120 120 The tax on the profit is same as increasing Cost . Therefore all the cost curves will shift upwards. The firm will choose Where MR is either equal to or greater than MC'. So, the new profit maximizing level of output and price will remain same.Profit maximizing output will be 3 ride and price will be 120.
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