Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium. What impact will a lump sum tax have on each firm in the short run? in the long run?
What will be an ideal response?
In the short run, the lump sum tax represents a fixed cost. The firm's output decision is unchanged, but its profits decrease. In the long run, the tax raises the LRAC of each firm, but not MC. Minimum AC is higher, so price is higher. With a higher price, each firm produces a greater quantity, but the higher price means less quantity is demanded in total; thus, the number of firms will decrease.
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Which of the following sets of goods might, under the right circumstances, be substitutes for an automobile?
A) Buses, trains, planes B) Powerboats, blimps, motorcycles C) Motels, tents, cardboard boxes D) Designer suits, fine wines, fancy homes E) All of the above.
Suppose there are two countries that are identical in every way with the following exception: Country A has a higher saving rate than country B. Given this information, we know with certainty that
A) the growth rate will be higher in A than in B. B) the growth rate will be the same in the two countries. C) the level of consumption per worker will be higher in A. D) the level of consumption per worker will be higher in B.