Calculate the effect of the tariff on the optimal price

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Reference no: EM13687001

A cocoa shipping firm has determined that its US demand curve is given by: Q= 6,500- 2P Where Q is metric tons of cocoa and P is the price per metric ton. The firm can import cocoa from the Ivory Coast for $1,150 per metric ton. Its shipping cost it $74 per metric ton of cocoa. The company has fixed costs of $1,100.

A. Write the inverse demand function and illustrate with a simple diagram.

B. Write the revenue function. At what level of output (Q) is revenue maximized.

C. Display the profit function.

D. Indicate the level of profits (or losses) if Q= 0 E. Decide the optimal price and quantity for this firm.

F. Presume the US government imposed an import tariff of $1,500 per metric ton cocoa.

Calculate the effect of the tariff on the optimal price and quantity sold by this firm. Does the tariff affect profits? Describe.

Reference no: EM13687001

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