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Assume that all firms in a perfectly competitive market structure are in long run equilibrium. The demand for the company product rise. Initially, price and economic profits rise. Soon afterward, the government decides to tax most (but not all) of the economic profits, arguing that the firms in the industry did not earn them - the profits were simply the result of an increase in demand. What effect, if any, will the tax have on market adjustment?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9309882

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