Answer:
$855.79
Explanation:
[tex]Q^{d}[/tex] = 1,200 - 22p .................................... (1)
[tex]Q^{s}[/tex] = - 220 + 40p .................................... (2)
When a subsidy of $1.20 is given, it will increase the price of the producers by $1.20 and Qs becomes:
[tex]Q^{s}[/tex] = -220 + 40(p + 1.2) = - 220 + 40p + 48
[tex]Q^{s}[/tex] = -172 + 40p .............................................. (3)
At equilibrium, [tex]Q^{d}[/tex] = [tex]Q^{s}[/tex]. Equating equations (1) and (3) and solve for equilibrium price p, we have:
1,200 - 22p = -172 + 40p
-22p - 40p = -172 - 1,200
-62p = -1,372
p = -1372/-62
p = 22.129
Substitute p into equation (3) to obtain equilibrium quantity, Q, we have:
[tex]Q^{s}[/tex] = -172 + 40(22.129) = -172 + 885.16 = 713.6
Cost of subsidy to taxpayers = [tex]Q^{s}[/tex] * Subsidy per unit = 713.6 * 1.2 = $855.79
