Question: consider a competitive market for red lentils with 10000 identical...
Consider a competitive market for red lentils with 10,000 identical farmers, a competitive market price of $5 and the following 𝑀𝐶 for each farmer:
MC= $0.5 + $0.05Q
Also consider the following market demand function:
Qd= 1.100,000 - 40,000P
a) Calculate the optimal level of production (in tonnes) for each farmer (show workings).
b) Assuming 10,000 lentil farmers of equal size, determine the market supply function and the equilibrium market quantity (show workings). (3 marks)
c) Consider that the government now imposes a 25% tax on producers, calculate the new market equilibrium price (two decimal places) and new market equilibrium output (two decimal places) (show workings). (3 marks)
d) Calculate the value of the deadweight loss for the consumer and the producer following a 25% tax on red lentils, as well as, the amount of government revenue. (5 marks)