Professional Documents
Culture Documents
Question:
Calculate the output, optimum scale and price while government imposes fixed
fee- show the effects on firm.
ClassOf1 provides exert guidance for College, Graduate and High school homework and live online tutoring on subjects like
Finance, Marketing, Statistics, Economics and others. Check out more solved problems in our Solution Library.
The government imposes a fixed fee per year on each firm operating in a competitive
market. What happens to output, the optimal scale of a firm, and price if there is a free entry
into the market. Show the effects on the firm and industry diagrams.
Solution:
New firm equilibrium is again attained at P2=MC at the minimum point of AC2. Therefore firm’s
output rises. Supply curve of the industry again shifts from S2 to the right. But industry’s output
may fall, may rise or remain unchanged because on one hand output falls when few firms leave
and also rises when existing firms increase their output. So net effect is ambiguous.
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
Sub: Economics Topic: Micro Economics
ClassOf1 provides exert guidance for College, Graduate and High school homework and live online tutoring on subjects like
Finance, Marketing, Statistics, Economics and others. Check out more solved problems in our Solution Library.
www.classof1.com
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.