Question: A perfectly competitive firm faces the following cost curves:

TC = 6000 + 3Q ³ so that MC = 9Q ² .

1. Determine (no diagrams are required) the firm’s equilibrium output and profit levels if the market price is 900. (2 points)
2. Suppose that the government now imposes a per-unit tax of size 267 on each firm in the industry and that the effect of this is to increase the market price of the good in the short-run from 900 to 996. Determine (no diagrams are required) this firm’s new equilibrium short-run output and profit levels under these circumstances. (2 points)
3. Given what has happened in part ‘b’ above, what will now happen in this industry in the long-run? Why? (2 points)

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