Question

In a perfectly competitive market, there are many identical firms. The firms have a cost function c(y) with U shaped average and marginal cost functions. The market is in a long run equilibrium with free entry and exit. Current market price is p, each firm currently produces y, market quantity is Y* and the number of firms is n. Due to changes in regulations in the state where these firms operate, the cost of production of all firms increased by a constant T. The new cost is c(y) + T for y > 0, but still c(0) = 0 (i.e. T is a quasifixed cost). After this market reaches a new long run equilibrium with free entry and exist, market price is p, each active firm produces y, market quantity is Y and the number of firms is n. Compare the before and the after tax long run equilibrium [Add <, = or > sign]: a) p p** b) y* y** c) Y* Y** d) n* n**

          In a perfectly competitive market, there are many identical firms. The firms have
a cost function c(y) with U shaped average and marginal cost functions. The market
is in a long run equilibrium with free entry and exit. Current market price is p*, each
firm currently produces y*, market quantity is Y* and the number of firms is n*.
Due to changes in regulations in the state where these firms operate, the cost of
production of all firms increased by a constant T. The new cost is c(y) + T for y > 0,
but still c(0) = 0 (i.e. T is a quasifixed cost).
After this market reaches a new long run equilibrium with free entry and exist,
market price is p**, each active firm produces y**, market quantity is Y** and the
number of firms is n**.
Compare the before and the after tax long run equilibrium [Add <, = or > sign]:
a) p* ____ p**
b) y* ____ y**
c) Y* ____ Y**
d) n* ____ n**

In a perfectly competitive market, there are many identical firms. The firms have
a cost function c(y) with U shaped average and marginal cost functions. The market
is in a long run equilibrium with free entry and exit. Current market price is p*, each
firm currently produces y*, market quantity is Y* and the number of firms is n*.
Due to changes in regulations in the state where these firms operate, the cost of
production of all firms increased by a constant T. The new cost is c(y) + T for y > 0,
but still c(0) = 0 (i.e. T is a quasifixed cost).
After this market reaches a new long run equilibrium with free entry and exist,
market price is p**, each active firm produces y**, market quantity is Y** and the
number of firms is n**.
Compare the before and the after tax long run equilibrium [Add <, = or > sign]:
a) p* p**
b) y* y**
c) Y* Y**
d) n* n**

Added by Aitor L.

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