Assignment_5_for_2010 - VICTORIA UNIVERSITY OF WELLINGTON...

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VICTORIA UNIVERSITY OF WELLINGTON SCHOOL OF ECONOMICS AND FINANCE ECON201 2010 ASSIGNMENT 5 Perfect Competition This assignment is not assessed, but you must prepare your answers in writing and bring them to tutorial for discussion. You may be asked at random to answer any of these questions for the class. 1. Assume : that the US tobacco industry: 1) is perfectly competitive, 2) is presently in long-run equilibrium, 3) is a constant-cost industry, that is to say, the cost of inputs and/or the technology do not change when firms enter and exit the industry, 4) is such that each plant has a set of "typically" shaped cost curves, 5) is such that all plants are the same, 6) is such that demand is typically shaped. a. Graph the present long-run equilibrium situation for both a typical plant and the entire industry. b. Suppose that the government imposes an excise tax on cigarettes. That is, now consumers have to pay a tax of τ for each pack of cigarettes. What will
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