Multiple Choice
A competitive industry has 10,000 identical firms. For each firm in the industry, the long-run cost of producing y units of output is c(y) = $100 + y2 if y > 0 and c(0) = 0. The government imposes a lump sum tax of $300 on each firm in the industry. Firms can avoid this tax only by going out of business. There is free entry and exit into this industry. In the long run, the number of firms
A) stays constant and the price of output rises by $30.
B) doubles and the price of output doubles.
C) is halved and the price of output is doubled.
D) stays constant and the price of output rises by less than $30.
E) None of the above.
Correct Answer:
Verified
Correct Answer:
Verified
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