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

TC = 6000 + 3Q³ so that MC = 9Q².

a. Determine (no diagrams are required) the firm’s equilibrium output and profit levels if the market price is 900. (2 points)

b. 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)

c. Given what has happened in part ‘b’ above, what will now happen in this industry in the long-run? Why? (2 points)