of the market for pizza is perfectly competitive and is characterized by a downward-sloping demand curve and an upward- sloping supply curve. a. Draw the competitive market equilibrium, Label the price, quantity, consumer surplus, and producer surplus (4 marks) b. Suppose that the government forces each pizzeria to pay a 1 tax on each pizza sold. Illustrate the effect of this tax on the pizza market, being sure to label the consumer surplus, producer surplus government revenue, and deadweight loss (if any)(6 marks) How does the tax affect efficiency and producer and consumer surpluses? (2 marks) c. If the tax was removed, pizza eaters and sellers would be better off, but the government would lose tax revenue. Suppose that consumers and producers voluntarily transferred some of their surpluses to the government Could all parties (including the government) be b off than they were with a tax? Explain using the labeled areas in your graph.(3 marks) e. Suppose that Vasya is the owner of a perfectly competitive restaurant "Margo" in the pizza market. The price of the pizza determined by the market is 500 roubles. The cost function of Vasya is TC=500+50Q^wedge 2 i. Find Vasya's marginal cost, average total cost,average variable cost and average fixed cost. (4 marks) ii. Draw side-by side diagrams for pizza market and firm. Identify the equilibrium price and quantity sold in Vasya's restaurant (4 marks) iii. Identify Vasya's profit in the short run.(3 marks) iv. Given your answer in e (iii), explain what will happen in the market for pizza in the long-run. Show all the changes in you diagram. (4 marks)

a. Competitive market equilibrium:<br />In a perfectly competitive market, the equilibrium is achieved where the supply curve intersects the demand curve. At this point, the price is determined by the intersection of the supply and demand curves. The consumer surplus is the area above the equilibrium price and below the demand curve, while the producer surplus is the area below the equilibrium price and above the supply curve.<br /><br />b. Effect of the tax on the pizza market:<br />When the government imposes a tax of $1 on each pizza sold, the supply curve shifts upward by the amount of the tax. The new equilibrium is achieved where the new supply curve intersects the demand curve. The consumer surplus decreases, while the producer surplus also decreases. The government revenue is equal to the tax multiplied by the quantity sold. The deadweight loss is the loss in total surplus due to the tax.<br /><br />The tax reduces efficiency and decreases both consumer and producer surpluses.<br /><br />c. Voluntary transfer of surpluses to the government:<br />If consumers and producers voluntarily transfer some of their surpluses to the government, it is possible that all parties, including the government, could be better off than they were with a tax. This is because the total surplus (consumer surplus + producer surplus) remains the same, but the distribution of the surplus changes. The government receives additional revenue, while consumers and producers receive less surplus. However, the total welfare of all parties remains unchanged.<br /><br />e. Vasya's restaurant:<br />i. Marginal cost (MC) is the derivative of the total cost function with respect to quantity. Average total cost (ATC) is the total cost divided by the quantity. Average variable cost (AVC) is the variable cost divided by the quantity. Average fixed cost (AFC) is the fixed cost divided by the quantity.<br /><br />ii. In the side-by-side diagrams, the equilibrium price and quantity sold in Vasya's restaurant are determined by the intersection of the supply and demand curves.<br /><br />iii. Vasya's profit in the short run is the difference between the total revenue and the total cost.<br /><br />iv. In the long run, if Vasya is making a profit, new firms will enter the market, increasing the supply and driving down the price. This will continue until the price equals the minimum of the average total cost, at which point firms will be making zero economic profit. In the long run, the market will reach a new equilibrium where the price equals the minimum of the average total cost, and firms are making zero economic profit.