Question 3 [20 marks]

(a) Industry X is characterized by perfect competition, so every firm in the industry is earning zero economic profit. If the product price falls, no firms can survive. Do you agree or disagree? Discuss. (5)

(b) An increase in the demand for coal also increases the salaries of coal miners. Is the long-run supply curve for films likely to be horizontal or upward sloping? Explain.

(c) How does a car salesperson practice price discrimination? How does the ability to discriminate correctly affect his or her earnings? (5)

(d) Discuss the likely impact of imposing an effective minimum wage on an otherwise competitive labour market. (5)