Microeconomic

Consider the market for cigarettes, which is experiencing an ongoing decline in demand. Industry Firm Suppose this market is perfectly competitive so that we can use the demand-and-supply model to describe the market outcomes. The industry's demand and supply curves are Price Price MC provided below, as are the cost curves for a typical firm in the industry. AT a. Suppose market demand is initially given by D, and price is p1 - AVC P1 In this case, a typical firm in the industry is and making Overall, is taking place. b. Suppose demand now begins to decline, with D, shifting toward (but not past) D2. In this case, a typical firm in the industry is and making Quantity (Q) Quantity (q) . Exit may not happen immediately because c. If demand for cigarettes continues to fall, then in this overall in this industry V, which will cause , leading to in the market price.d. What role can government play to prevent the decline of this industry? C:- A. Agovernment attempt to prop up this declining industry would likely only delay its demise at a cost to taxpayers and lead to a more abrupt and difficult decline. There is no effective way for the government to ease either the decline of the industry or the negative effects on workers in the industry. I; _2- B. The government can permanently prevent the decline of this industry by cutting taxes and providing subsidies on the industry's inputs and nal products. r :- C. Agovernment attempt to prop up this declining industry would likely only delay its demise at a cost to taxpayers and lead to a more abrupt and difficult decline. The best response would be to provide retraining and temporary income-support schemes that cushion the impacts of change. .;_ _:- D. The government can permanently prevent the decline of this industry by funding research and development and providing low-interest loans to the industry. a. Suppose market demand is initially given by D1 and price is p1. In this case, a typical rm in the indul: and making V '. Overall, :lace. b. Suppose demand now begins to decline, nut not past) D2. producing In this case, a typical rm in the industry is ng V . Exit may not ha; \"0t producing a c. If demand for cigarettes continues to fall, then in this overall in this industry V , which will cause V , leading to V in the market price. a. Suppose market demand is initially given by D1 and price is p1. In this case, a typical rm in the industry is and making _ Overall, V is taking place. | decline, with D1 shifting toward (but not past) D2. losses. is\")! '3 V and making not happen immediately because positive economic profit I zero economic profit 3 to fall, then in this overall in this industry | F', which will cause ' V , leading to V in the market price. a. Suppose market demand is initially given by D1 and price is p1. In this case, a typical rm in the industry is - and making V'. Overall, _ is taking place. b. Suppose demand now begins to : but not past) D2. In this case, a typical rm In the "Kit. Ing V . Exit may e exit c. If demand for cigarettes continues neither entry nor exit i industry V l' ......u m..." V , leading to V in the market price. a. Suppose market demand is initially given by D1 and price is p1. In this case, a typical rm in the industry is and making V '. Overall, V is taking place. b. Suppose demand now begins to decline, with D1 shifting toward (but not past) D2. In this case, a typical rm in the industry is 'j and making V . Exit may not ha; a c. If demand for cigarettes continues to fall, \"0t producing industry V , whic: producing ;to V in the market price. a. Suppose market demand is initially given by D1 and price is p1. In this case, a typical rm in the industry is and making V '. Overall, V is taking place. b. Suppose demand now begins to decline, with D1 shifting toward (but not past) D2. In this case, a typical rm in the industry is Y and making . Exit may not happen immediately because l 5 to fall, then in this overall in this industry losses. 7', which will cause V , leading to V positive economic profit l zero economic profit 3 prevent the decline of this industry? a. Suppose market demand is initially given by D1 and price is p]. In this case, a typical rm in the industry is and making V .Overall, V is taking place. b. Suppose demand now begins to decline, with D1 shifting toward (but not past) D2. Qunnul)' I In this case, a typical rm in the industry is V and making H . Exit may not happen immediately because firms are at least covering their variable costs, so their shortrun losses would be greater if they exited firms are likely to earn economic profits in the future firms are at least covering their marginal costs, so their short-run losses would be greater if they exited firms are covering their total costs firms are at least covering their xed costs, so their shortrun losses would be greater if they exited a. Suppose market demand is initially given by D1 and price is p1. In this case, a typical rm in the industry is and making V .Overall, V is taking place. b. Suppose demand now begins to decline, with D1 shifting toward (but not past) D2. In this case, a typical rm in the industry is V and making l.l Qumuiu . V . Exit may not happen immediately because c. If demand for cigarettes continues to fall, then in this overall in this industry V , leading to V in I i all existing rms will exit a decline of this industry? new firms will enter eclining industry would likely only delay Id to a more abrupt and difficult decline. . . . 'nent to ease either the decline of the neither entry nor exit Will take place -_- =_ \"M Minus. some existing rms will exit Consider the market for cigarettes, Which is experiencing an ongoing decline in demand. Indus mand-and-supply pply curves are Price the industry demand curve to shift to the right the industry demand curve to shift to the left Ice. the industry supply curve to shift to the left t not past) D2. no change in any industry or typical firm curves Quantity all individual firms' MC, AVC, and ATC curves to shift up all individual firms' MC, AVC, and ATC curves to shift down the industry supply curve to shift to the right dustry leading to in the market price. d. What role can government play to prevent the decline of this industry? O A. A government attempt to prop up this declining industry would likely only delay its demise at a cost to taxpayers and lead to a more abrupt and difficult decline. There is no effective way for the government to ease either the decline of the indicators antha nations affanto aConsider the market for cigarettes, Which is experiencing an ongoing decline in demand. Indus Suppose this market is perfectly competitive so that we can use the demand-and-supply model to describe the market outcomes. The industry's demand and supply curves are Price provided below, as are the cost curves for a typical firm in the industry. a. Suppose market demand is initially given by D, and price is P1 - In this case, a typical firm in the industry is and making Overall, is taking place. b. Suppose demand now begins to decline, with D, shifting toward (but not past) D2. In this case, a typical firm in the industry is and making Quantity V. Exit may not happen immediately because c. If demand for cigarettes continues to fall, then in this overall in this industry which will cause , leading to in the market price. d. What role can government play to prevent the decline of this industry? an increase O A. A government attempt to prop up this declining industry would like its demise at a cost to taxpayers and lead to a more abrupt and d There is no effective way for the government to ease either the de no change indicators antha nations affanto a a decrease