eco204 project 1

Upon the management’s request, I have been appointed as an analyst to express my opinion on the effects of proposed tax on sodas on its business and consumers. The supermarket chain is currently a monopoly and is comprised of seven stores altogether. The businesses have ample capacity and are currently charging the optimal price, quantity, and thus earning maximized revenue. However, the government is now considering a proposal to impose a 1% tax on soda sold in the supermarket chain. I have analyzed the effect of this 1% “fat” tax on consumers and its supermarkets. To better serve the management and help decide which tax schemes are better, I have included my analysis on this report. The information includes: current revenue maximizing price, output, and maximizing revenue; the effects on management and consumers’ satisfaction; and the alternative way for the supermarket chain to produce the same amount of tax revenues. I wish the management will consider all aspects and effects of the two tax schemes and carefully determine which scheme will benefit the consumers, supermarket chain, and government. The businesses are maximizing its revenue with its ample capacity. Comprised of seven different stores of supermarket chain, it is currently maximizing its revenue at $502.0505. When achieving this revenue, the quantity of soda (ozs) provided would be 29469 at a price of roughly $0.0170366 per oz of soda sold per week across the supermarket chain. When the tax is imposed on every soda, the “fat” tax will undoubtedly have an impact on the current optimal revenue maximizing price, number of quantities sold, and revenue. The price will rise and the quantity will decrease, which will affect the revenue to decrease as well. After proposed consumption tax, the quantity has decreased from 29469 to 29174.31 in a week, which is over 1%. The price has increased from $0.0170366 to $0.0172069, an increase of about 1%. Due to an increase in price and decrease in quantity, the