Problema Solution

Hotel rooms in Smalltown go for $100, and 1,000 rooms are rented on a typical day. To raise revenue, the mayor decides to charge hotels a tax of $10 per rented room. After the tax is imposed, the going rate for hotel rooms rises to $108, and the number of rooms rented falls to 900. Calculate the amount of revenue and the deadweight loss of the tax

Answer provided by our tutors

Revenue: 108*900 = $97,200

Deadweight loss of the tax: 10*900 = $9,000.