The government of Bassaland is looking for new revenue sources. It is considering imposing an excise tax on two goods: palm wine and diapers
If the price elasticity of demand for the goods are -0.47 and -1.89 respectively, which good should it tax if the goal is to raise revenue? If the government wants to tax only one good, which good should it tax if the goal is to discourage consumption? Explain your answer.
If the goal is to raise revenue, it should tax palm wine. The demand for palm wine is inelastic, so an increase in its price will result in an increase in revenue. If the goal is to discourage consumption it should tax diapers since the demand for diapers is elastic, while the demand for palm wine is inelastic.
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How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?
What will be an ideal response?
A firm currently has 5 workers each paid $15 per hour. If it decides to hire a 6th worker, the hourly wage increases to $18 for all workers. The 6th worker is expected to contribute to around $40 worth of output. Based on this information, the firm should
a. Hire the 6th worker since MR>MC
b. Not hire the 6th worker since MR>MC
c. Not hire the workers since MR