Effect of tax on economic activity Suppose a per unit tax is imposed on perfectly competitive, profit-maximising firms that operate in an increasing-cost industry. What would happen to the market price, market output, the number of firms in the industry, output and profit of each firm in the short run? Illustrate on a graph. Assume that firms have upward-sloping marginal cost curve. Repeat your analysis for the long run. Compare the new long run equilibrium to the short run equilibrium and to the original long run equilibrium (before tax).

Effect of tax on economic activity Suppose a per unit tax is imposed on perfectly competitive, profit-maximising firms that operate in an increasing-cost industry. What would happen to the market price, market output, the number of firms in the industry, output and profit of each firm in the short run? Illustrate on a graph. Assume that firms have upward-sloping marginal cost curve. Repeat your analysis for the long run. Compare the new long run equilibrium to the short run equilibrium and to the original long run equilibrium (before tax).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.9P

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