Industries in simple economy producing commodities

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Reference no: EM131386629

There are two industries in a simple economy producing commodities x and y. Industry x produces with constant long run cost. The government levies a per unit tax on industry x of tx.

a) Graphically analyze the short and the long run effects of this tax on the output and profits of the representative firm producing x, and on the market output and price of x.

b) Who bears the burden of the tax on x in the long run? Explain briefly.

c) Explain intuitively why this tax leads to an inefficient allocation for the economy as a whole in the long run.

Reference no: EM131386629

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