Problem 5: The local government in Karachi is considering two tax proposals: • A lump-sum tax of Rs. 300 on each producer of Ice-cream.

• A tax of Rs. 1 per unit of Ice-cream, paid by producers of Ice-cream.

a. Which cost curves; average fixed cost, the average variable cost, average total cost, and marginal cost would shift as a result of the lump-sum tax? Why?

b. Which cost curves; average fixed cost, the average variable cost, average total cost, and marginal cost would shift as a result of the per-unit tax? Why?

David consumes two things: gasoline (g) and bread (b). david's utility function is u(g, b) = 10g^0.25 b^0.75. use the lagrange technique to solve for david's optimal choices of gasoline and bread as a function of the price of gasoline, p_g, the price of bread, p_b, and his income m. with recent decrease in the price of gasoline (maybe due to external shock such as shale gas production) does david increase his consumption of gasoline? for david, how does partial differential g/partial differential p_g depend on his income m? that is, how does david's change in gasoline consumption due to an increase in the price of gasoline depend on his income level? to answer these questions, find the cross-partial derivative, |partial differential^2 g/partial differential m partial differential p_g.