In a perfectly competitive market, all firms are identical there is free entry and exit, and an unlimited number of potential entrants. Now, the government starts collecting a specific tax t. What is the effect on the long-run equilibrium market quantity, market price, and the quantity for an individual firm?
Answer to relevant QuestionsIf the inverse demand function is p = 300 – 3Q, what is the marginal revenue function? Draw the demand and marginal revenue curves. At what quantities do the demand and marginal revenue lines hit the quantity axis? Why might a monopoly operate in any part (downward sloping, flat, upward sloping) of its long-run average cost curve, but a competitive firm will operate only at the bottom or in the upward-sloping section? When will a monopoly set its price equal to its marginal cost?Show mathematically that a monopoly may raise the price to consumers by more than a specific tax imposed on it. Use a diagram similar to figure to illustrate the effect of social media on the demand for Super Bowl commercials.
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