Assume that a perfectly competitive, constant cost industry is in a long run equilibrium with20 firms. Each firm is producing 150 units of output which it sells at the price of $20 per unit;out of this amount each firm is paying $4 tax per unit of the output. The government decides to abolish the tax.

a) Explain what would happen in the short run to the equilibrium price and industry output; number of firms in the industry; output and profit of each firm. Illustrate on diagrams for the market and a particular firm(4.marks)

b) Explain what would happen in the long run to the equilibrium price and industry output; number of firms in the industry; output and profit of each firm. Illustrate on diagrams for the market and a particular firm