1)Suppose the government gives a subsidy to firms in a price searcher with low barriers to entry industry. Draw a diagram showing the short-run impact and the adjustment to the new long run industry equilibrium. What happens to the equilibrium price and number of firms in the industry? (5 points)

2)In the long run, a price searcher firm earns zero economic profit, which is exactly what would occur if the industry were price taker. Assuming that the cost curves for each firm are the same whether the industry is perfectly or price searcher, answer the following questions.

a)Why don't price taker and price searcher industries produce the same equilibrium quantity in the long run? Drawing graphs will help you answer this question. (2 points)

b)Why is a price searcher industry said to economically inefficient? (2 points)

c)What benefits might cause us to prefer the price searcher result to the price taker result? (2 points)