What are the equilibrium quantity and price of smartwatches

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There is a competitive market of smartwatches with the demand Q =306 -2P X and the supply Q = P (where Q is the quantity of watches and P is their per unit price).

(a) What are the equilibrium quantity and price of smartwatches?

(b) If the government imposes an ad valorem tax of 20% on smartwatches, what are the equilibrium quantity and price of smartwatches? Calculate the tax incidence of this tax. What would be the equivalent excise tax?

(c) If this market were a monopoly instead, what would be the monopolist's MC? What about the monopoly equilibrium quantity and price?

(d) If the market is a monopoly and the government imposes the same ad valorem tax of 20%, what are the equilibrium quantity and price now? (HINT: the tax reduces MR!).

Calculate the tax incidence of this tax. What would be the equivalent excise tax here?

(e) Why is the dollar amount of the same ad valorem tax is smaller in (b) but the equivalent excise tax is smaller in (d)? Briefly explain. Why does the monopolist end up paying larger portion of the same ad valorem tax than the competitive sellers? Provide two main reasons with brief explanation.

Reference no: EM132461309

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