3. (This question and the next both refer to the following setup.) The market for gyms & fitness centers in Ann Arbor is very competitive. While there are some differences between gyms, they are small and for most consumers every gym is exactly the same and they are willing to switch to whatever gym has the cheapest price. Let's suppose that this market is initially in a long-run equilibrium. Then, the city government decides to impose a new annual licensing fee for all gyms, to help the city cover the cost of increased inspections and enforcement of safety regulations. This fee is an annual fee that all gyms have to pay and is the same for all gyms regardless of their size, how many clients they have, etc. Assume that nothing else about the gyms' cost structure or about the market changes. Fill in the blanks: Compared to the initial long-run equilibrium, In the new short-run equilibrium, the price charged by gyms will and the profits of each existing gym will .

(a) go up ; go up

(b) go up ; go down

(c) stay the same ; go up

(d) stay the same ; go down

(e) go down ; go down

4. (Continuing from the previous question.) Suppose that the market for gyms in Ann Arbor reaches its new long-run equilibrium without any further external shocks. You may also assume that all gyms in Ann Arbor operate with the same cost curves. Fill in the blanks: Relative to the starting point before the licensing fee was imposed, the number of gyms in Ann Arbor will , and the quantity of services that each individual gym in the market sells will .

(a) go down ; stay the same

(b) go down ; go up

(c) go up ; go down

(d) go up ; stay the same

(e) go up ; go up