solution

The long-run supply curve for a particular type of kitchen knife is a horizontal

line at a price of $3 per knife. The demand curve for such a kitchen

knife is QD = 50 – 2P where QD is the quantity of knives demanded (in millions per year) and P is

the price per knife (in dollars). What is the equilibrium output of such knives?

b. If a tax of $1 is imposed on each knife, what is the equilibrium output

of such knives? (Assume the tax is collected by the government from the

suppliers of knives.) c. After the tax is imposed, you buy such a knife for $3.75. Is this the longrun

equilibrium price?