K. Segerson Economics 218 Homework #6 Spring, 2003 Intermediate Micro Theory 1. Consider a perfectly competitive industry comprised of 200 of identical firms. Asswne that all of the inputs used by the finn are variable. The industry is currently in Ions run equilibrium at an output price of $10 per unit. At this price, each firm is producing 100 units ofoutput. (a) State the three conditions that define this long run equilibrium for this industry, and illustrate the long nm equilibrium graphically. Assume that the government needs to raise $20,000 in revenue. It is considering two alternative policies. Under the first policy (policy A), the govenunent would make each firm pay a licensing fee~ F, in order to be in business. This is a fixed fee, i.e., it does not depend on the amount the firm produces. Under the .second policy (policy B), the government would impose a per unit tax of$1 per unit on output. Consider first the licensing fee.
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This note was uploaded on 05/04/2008 for the course ECON 218 taught by Professor Segerson during the Spring '08 term at UConn.