In the competitive children’s pajama industry, a new government safety regulation raises the average cost of children’s pajamas by $2 per pair.
a. If this is a constant cost industry, then in the long run, what exactly happens to the price of children’s pajamas?
b. If this is an increasing cost industry, will the long-run price of pajamas rise by more than $2 or less?
c. If this is an increasing cost industry, how much will this new safety regulation change the average pajama maker’s profits in the long run?
d. Given your answer to part c, why do businesses in competitive industries often oppose costly new regulations?