The town of Manwin has exactly 100 parking spaces, x, and the costs of supplying each space are zero (but no more than 100 spaces can be brought to market). Each person who parks pays a monthly parking rate. The market demand for parking each month is given by p = 90 x/2. The town government is considering imposing a $10 per-space tax, which is payable only if someone rents a parking space. One question of interest is how much a parking space is worth / could sell for. The answer is: it is the present value of profit from owning this asset. The formula for calculating the present value of an asset (with an infinite time horizon) is P V = R/r, where R is profit per month. Assume the monthly interest rate is r = 0.01.

 a. Assume the market is competitive, with each parking space being owned by a separate person. 

Find (i) the burden of the tax on each side of the market, each month and (ii) how much each parking space could be sold for, before and after the tax. (Note: there is no long-run entry into this market). b. Now assume that one firm owns all 100 parking spaces. 

Find the price that the firm would charge per space before and after the tax (it can only charge one price for all parking spaces). 

How much of the tax burden is borne by the firm, and how much by individuals? 

What is the market value of this firm, before and after the tax? Show your work. c. How would your answers in (b) change if the tax was payable regardless of whether a parking spot was being rented or not? Explain your reasoning.

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a In a competitive market where each parking space is owned by a separate person lets calculate the burden of the tax on each side of the market i Tax burden on renters The tax of 10 per space is paya... View the full answer