Options for each drop down are \"Increase\" \"Decrease\" and \"Remain Unchanged\

Question

Options for each drop down are "Increase" "Decrease" and "Remain Unchanged"

In a perfectly competitive market, all firms are identical, there is free entry and exit, and an unlimited number of potential entrants. Now assume the government starts taxing producers a tax per unit produced. What is the effect on the long-run equilibrium market quantity, market price, and the quantity for an individual firm? The market equilibrium quantity will L tne market equilibrium price will I , and the quantity produced by an individual firm will

Explanation / Answer

If a per unit tax on the perfectly competitive firm is imposed, it leads less price received by producer per unit so they produce less and buyer price also increases, so individual firm produces less.

This happens because with the imposition of tax on perfectly competitive market supply curve shift leftward, as a result, equilbrium price increase and equilibrium quantity decrease, so an individual firm production decreases.

Hence it can be said that market equilibrium quantity decreases and equilibrium price increases and quantity produced by an individual firm will decrease.

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