Suppose the demand for saline solution is perfectly inelastic for ...

[natalie2426]

Suppose the demand for saline solution is perfectly inelastic for contact lens wearers.
 
  If the government imposes a tax on saline solution, what occurs? Be sure to tell what happens to the price paid by the buyers and discuss the incidence of the tax.

Question 2

The above figure shows the demand and cost curves for a firm in monopolistic competition in the long run. The firm maximizes its profit by
 
  A) producing 4 units and charging a price of 15.
  B) producing 8 units and charging a price of 5.
  C) producing 16 units and charging a price of 10.
  D) None of the above answers is correct.

[anyusername12131]

Answer to Question 1

If demand is perfectly inelastic, then no matter what the price, buyers will not decrease their quantity demanded when the price rises. Hence the tax will be passed along entirely to the consumers. So, in the case of saline solution, the price paid by the buyers will rise by the full amount of the tax and so buyers pay the entire amount of the tax.

Answer to Question 2

D