Find the state''s profit-max expenses to sell the wine

Reference no: EM13183233

The Commonweatlth of PA is the monopoly of wine in that satte. Suppose that Quaker Cabernet has no close substitutes and that hte statewide inverse demand funciton for this wine is p = 5-0.001WQ. The state purchases the wine on teh wholesale market for $2 a bottle, and the state-operated liquor store incur no other expenses to sell this wine.

a) Find the state's profit-max expenses to sell this wine.

b) Neighboring NJ permits private reatilers to sell wine. They face the same statewide dmeand curve as in PA. No interstate wine trade is permitted. Suppose the NJ market for Quaker Cabernet is perfectly competitive. Find the corresponding equilibirum price and quantity.

c) NJ taxes wine sales. While the retailers pay the taxes on wine sales, they may passon some or all of these taxes to consumers by raising prices. Identify the specific tax (tax per bottle sold) for which NJ's equilibirum market price and quantity equal the PA monopoly price and quantity. Given the quantity tax, show that NJ's tax revenue equals PA's profit.

Reference no: EM13183233

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