Problem Set 02 Solutions

# Soifonepersongoestothedriveinshepays10ifacouplegoes

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Unformatted text preview: it) for couples. For example, the firm can charge \$10 per car, and \$5 for each passenger beyond the driver. So, if one person goes to the drive‐in, she pays \$10. If a couple goes, each pays \$7.50. 5. Assume that the tax is placed on a single firm. a) The effect will be to raise the AC and MC curves of the firm. b) Neither the market price, nor market output change as the firm in question makes a negligible contribution to price and output. c) The firm will exit as it will be losing money in the LR. Instead, assume that the tax is placed on all firms. a) The tax will raise the MC and AC of all firms. b) Price will increase; output will decrease; and profits will remain at zero. c) There will be exit by some firms in the industry....
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