Suppose a $2 tax imposed on consumers causes the demand curve to shift down to D₂. At the new equilibrium price (shown by the intersection ofD₂ and Supply), each firm would earnprofit in the long run. If this is a constant-cost industry, firms will the industry whenmoving from the short run to the long run until the equilibrium market price isper cat toy.True or False: Because this is a constant-cost industry, the incidence of this tax falls equally on consumers and producers in the long run.O TrueFalse 9. Moving from short-run to long-run equilibriumSuppose the competitive market for cat toys is in short-run equilibrium. The following graph on the left shows the initial demand (D₁) and short-runsupply for cat toys. Assume every firm in this industry is identical. The graph on the right shows the marginal cost (MC) and average cost (AC) curvesfor each firm in the long run.9.49PRICE (Dolars per cat toy)MShort-run MarketD, (Pre-tax)02Supply00 10 20 30 40 50 60 TO 000 100QUANTITY (Thousands of cat toys per year)?COST (Dolars per cat toy)90Individual Firm in the Long RunAC** #10OUTPUT (Hundreds of cat toys per year)

The competitive market for the toys was in a short run equilibrium at a price $5 and a quantity of…

Suppose a $2 tax imposed on consumers causes the demand curve to shift down to D₂. At the new equilibrium price (shown by the intersection of Da and Supply), each firm would earn profit in the long run. If this is a constant-cost industry, firms will the industry when moving from the short run to the long run until the equilibrium market price is 5 per cat toy. True or False: Because this is a constant-cost industry, the incidence of this tax falls equally on consumers and producers in the long run. True False

Suppose a $2 tax imposed on consumers causes the demand curve to shift down to D₂. At the new equilibrium price (shown by the intersection of Da and Supply), each firm would earn profit in the long run. If this is a constant-cost industry, firms will the industry when moving from the short run to the long run until the equilibrium market price is 5 per cat toy. True or False: Because this is a constant-cost industry, the incidence of this tax falls equally on consumers and producers in the long run. True False

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.9P

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