Need help with microeconomics

Price: $5 USD

Question description

Q1. In order to reduce teen smoking, the government places a $2 per pack tax on cigarettes. After one month, while the price to the consumer has increased a great deal, the quantity demanded for cigarettes has been reduced only slightly.

a.   Is the demand for cigarette over the period of one month elastic or inelastic?  Briefly explain. 

b.  Suppose you are in charge of pricing for a tobacco firm.  The President of your firm suggests that the evidence received over the last month demonstrates that the cigarette industry should get together and raise the price of cigarettes further because total revenue to the tobacco industry will certainly rise.  Is the president of your firm correct?  Explain your reasoning. 

c.   Suppose the president of your tobacco firm suggests that your firm should raise the price of your cigarettes independent of the other tobacco firms because the evidence clearly shows that smokers are insensitive to changes in the price of cigarettes.  Is the president of your firm correct if he wants to maximize total revenue?  Explain your reasoning. 

Tutor Answer

(Top Tutor) Daniel C.
School: Boston College
Studypool has helped 1,244,100 students
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1823 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors