Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would:

A) increase by $10.
B) increase by $5.
C) not change.
D) decrease by $5.
E) decrease by $10.

Question

William Mitchell · Accepted Answer

Final Answer : B, Explanation :  The tax effectively increases the marginal cost of each ticket sold by $10. In a situation where the marginal cost is initially zero, the imposition of a tax shifts the supply curve upward by the amount of the tax. However, due to the inverse relationship between price and quantity demanded, the full amount of the tax is rarely passed on to consumers in the form of higher prices. Instead, the price typically increases by an amount less than the tax. Given the elasticity of demand and the specific details provided, the profit-maximizing strategy would involve absorbing part of the tax and passing part of it onto consumers, resulting in a price increase smaller than the tax itself. Without the specific demand elasticity, we can't calculate the exact split, but the principle that the price increase is less than the tax applies, making an increase by $5 a reasonable outcome given the scenario.

Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would:

A) increase by $10.
B) increase by $5.
C) not change.
D) decrease by $5.
E) decrease by $10.

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Learning Objectives

Related questions

Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would:A) increase by $10.B) increase by $5.C) not change.D) decrease by $5.E) decrease by $10.

Definitions

Learning Objectives

Learning Objectives

Related questions

Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would:

A) increase by $10.
B) increase by $5.
C) not change.
D) decrease by $5.
E) decrease by $10.