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D1. 126 points] Consider a firm in the perfectly competitive industry with identical firms. A pandemic has caused a sudden drop in market demand and
D1. 126 points] Consider a firm in the perfectly competitive industry with identical firms. A pandemic has caused a sudden drop in market demand and for simplicity, no change in costs. Assume that this pandemic will end in a few months and things will go back to normal. The policy maker's goal is to prevent firms from going out of business and shutting down until the pandemic is over. There are two proposals under consideration. Proposal 1: A stimulus package of $10K to all firms. Proposal 2: A per-worker subsidy of $5 per hour during the pandemic. a. 19 points| What is the impact of Proposal 1 on a firm's decision to stay in business in the short-run? Explain your reasoning, clearly state any assumptions you are making. b. 19 points What is the impact of Proposal 2 on a firm's decision to stay in business in the short-run? Explain your reasoning, clearly state any assumptions you are making. C. [8 points Suppose demand goes back to normal after the pandemic is over. What are the long-term effects on the businesses if the government continues 1) paying $10K to all business each year, and 2) pays a per-worker subsidy of $5 per hour
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