Consider the case of a perfectly competitive market. At present the equilibrium price is $20

and the equilibrium quantity is 10,000.

a) Suppose the government wishes to tax this good in order to raise $50,000 to fund a

new program. Should the tax be set at $5/unit? Explain why or why not.

b) If the industry is a constant cost industry, will the government raise more revenue in

the short run or the long run? Explain.

c) From consumers' perspective, is it better for this to be a constant cost or increasing

cost industry?