Microeconomics
Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
Question
Chapter 9, Problem 4QP
To determine

The effect of imposing tax.

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Suppose all firms in a perfectly competitive market structure are in long-runequilibrium. Then demand for the firms’ product increases. Initially, price andeconomic profits rise. Soon afterward, the government decides to tax most (but not all) of the economic profits, arguing that the firms in the industry did not earn the profits. Rather, the profits were simply the result of an increase in demand. What effect, if any, will the tax have on market adjustment?
If firms in a perfectly competitive industry are earning losses, we would expect that in the long run the market demand curve for the product will shift to the left causing industry output to fall. the market supply curve for the product will shift to the left causing industry output to fall. the market supply curve for the product will shift to the right causing industry output to rise. the market demand curve for the product will shift to the right causing industry output to rise.   there will be no change in industry output as long as marginal revenue equals marginal cost for the individual firms.
What are the unique characteristics of a perfectly competitive market structure compared to the other market structures ?
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  • Suppose you are hired as an economic consultant for Promax Consulting Company.  Your job is to advise the company’s clients on the appropriate action to take in the short-run in order to maximize the profits (or minimize the losses) for each firm.  The firms you are about to analyze produce different products, and each operates independently in a different perfectly competitive market.  You may assume that each is currently operating at an output level where marginal cost is increasing.  Fill in the missing information, and make your suggestions about the appropriate action for each firm by placing one of the following symbols in the last row of the table of information that follows:               C          =          currently operating at the correct level of output             I           =          increase the level of output             D         =          decrease the level of output             SD       =          shutdown the plant   Firm                            A…
    What is the formula for profit maximization by firm ? Why does this result in the marginal cost curve becoming the same as the supply curve for firms in perfect competition?   what is the difference between the short run and long run ? Why does this difference matter in our discussion of firm behavior?
    Which of the following industries most closely approximates the perfectly competitive model? (a) Automobile,(b) cigarette, (c) newspaper, or (d) wheat farming.
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