Consumer and producer surplus measures before the tax

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Reference no: EM13804864

The charter boat fishing industry has a marginal benefit (demand) for fishing trips out of Irondequoit Bay which can be expressed as a linear function of the price of the trip and the number of trips taken out of the port. This marginal benefit curve is estimated to be -2Q+1200. The local industry marginal cost curve is estimated to be a linear function of number of trips taken and is estimated to be Q+40. In recent years, environmental groups have argued that the charter boat industry is overfishing common sport fish salmon, char, etc. and have estimated the total social cost, which include the cost of this loss biodiversity and other passive forms of fish enjoyment, to be 3Q+50. The environmental groups are arguing for a tax on this industry. Assuming the social marginal cost estimation is correct, please answer the following:

1. What is the optimal tax on this industry?

2. What is the amount of tax revenue generated by this tax?

3. What is the size of the deadweight loss?

4. What are the consumer and producer surplus measures before the tax?

5. What are the consumer and producer surplus measures after the tax?

6. What is the percentage change in consumer and producer surplus due to the tax? Is the burden of this tax falling roughly equally on both fishermen and charter boat owners?

Reference no: EM13804864

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