Problem 6 Hard Difficulty

Pretzel stands in New York City are a perfectly
competitive industry in long-run equilibrium. One day,
the city starts imposing a $\$ 100$ per month tax on
each stand. How does this policy affect the number of
pretzels consumed in the short run and the long run?
a. down in the short run, no change in the long run
b. up in the short run, no change in the long run
c. no change in the short run, down in the long run
d. no change in the short run, up in the long run

Answer

c. no change in the short run, down in the long run.

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Principles of Microeconomics

Chapter 14

Firms in Competitive Markets

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October 23, 2019

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November 18, 2020

5. Ball Bearings, Inc. faces costs of production as follows: Quantity Total Fixed Costs Total Variable Costs 0 $100 $0 1 100 50 2 100 70 3 100 90 4 100 140 5 100 200 6 100 360 a. Calculate the company`s average fixed costs, average variable costs, avera

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November 18, 2020

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Video Transcript

So how everyone on this is? Ah, promo six from chapter, chapter for Teeth. So this is a little bit tricky questions, and I hope everyone can understand that. End off my radio. So this question is asking us what we're happened in, Laura. And short round if the city starts imposing $100 per month tax on each pretzel stand in York City, which is a perfectly proper competitive industry in line around equilibrium, the first thing we need to understand what this 100 Artemis, the 100 daughter is ah, is a city imposed. The test is a test. It's text I'll each stent. So? So this. So it all. It means that this $100 is a fixed cost for each press US stent in Europe city. So what does this mean? It means this little curve, this real curve average total cost. Well, Kel Yeah, right. But don't. But, uh, I need to Ah be Ah ah! I need to Ah, be rigorous here. We don't know how much that this curve ships, but we do know this cur well shaped. So why I need to mention that Because we don't know whether this this curve after shifting this curve. Whether this cur well go above this one's which is a max a port perfect maximizing points for each competitive. For in this industry where let's go up or ah O R is still are keeping a still keeping a still keep below below. This points. So this is where we're quick, critical forever foe for fiber and the lies here because we need to analyze both for and Larma. Why I need to mention that Because if if these points if this points if the price its creatures and the average of wearable costs which means this this points it's greater than it is, it's above the average of arable costs it's want. Nothing will happened in short, one rat, because this I took this screen from the top guy says it's the company well, shut down in the short run. If the price license, on average, wearable cost of why this is generally true for each form units compounded for because we know this $100 is a face cost, so this curve won't shaped it. Just be here as euro after imposing that has, this could well be the same position as it before, so the points won't go below. So the point will be always above this curve off even though the city imposes $100 tax on each extent. So this is general truth. In short run, nothing will happened. But Laura, it can be a little bit tricky. It's kindof we need toe unless kiss by case scenario. Why? Because in the Laura as Islam, like in the wrong run, I thought, is this point which is the press below the average total call. It stunk here. The firm will shut down so as I cz. So if this curve Gobi, after imposing on this tester some some firm, some firms average total cost. This is new one. This is some some curse the new average total cost. If the new average total cost this curve go up above this point This point, which is the price the firm will shut down. So we're clear right now. All right? Why? Cause we know for us nothing. No change in the short rahm until well, it's well, definitely definitely dunk in the wrong wrong. But not not every firm in this. Ah, in that stairwell exit because some off them our exit. So as some firms, which the new average total cost go above this point, it's while exit the firm. If this if the new average total costs Steuer still below below the price. This firm, this firm well, steal a Beyonce. It's in this industry, but all you all we know it will go down with them Long rock. So the quite the C S o b I have a question. Our answer Nothing. No change in the shore. Um, but go down in the long run.

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