=+14.8 Policy and Business Application: Business Taxes (contd): In exercise 13.11, we introduced a number of possible

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=+14.8 Policy and Business Application: Business Taxes (cont’d): In exercise 13.11, we introduced a number of possible business taxes and asked what a firm’s response would be assuming that prices w, r, and p remained unchanged. Now that we have introduced the notion of equilibrium price formation, we can revisit the exercise.

A. Suppose the restaurant industry is in long-run equilibrium, all restaurants use the same homothetic decreasing returns to scale technology, and all have to pay a fixed annual franchise fee F.

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