Calculate the effect of a marginal increase

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Consider a perfectly competitive market in which the government can impose a per-unit tax t ≥ 0. Imagine that we can predict the equilibrium price that consumers pay for each level of t and that this is given by pc(t) = .5t + 3. Suppose that all firms in the market are identical and that the supply function of 2 each firm is q∗(p) = p + 2. The government is currently setting t = 2. Calculate the effect of a marginal increase in t on the profit that each firm makes in equilibrium.

Reference no: EM131167306

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