Question 3 There is free entry into the pollicle industry. Anybody can enter this industry and have the same U-shaped average cost curve as all of the other rms in the industry. (a) On the diagram below, draw a representative rm's average and marginal cost curves using blue ink. Also, indicate the long-run equilibrium level of the market price. Price 20 l' D U! 0 10 20 30 40 Quantity (b) Suppose the government imposes a tax, t, on every unit of output sold by the industry. Use red ink to draw the new conditions on the above graph and illustrate your answers to the following questions: After the industry has adjusted to the imposition of the tax, the competitive model would predict the following: the market price would (increase?, decrease?) by what amount?, there would be (more?, the same?, fewer?) rms operating in the industry, and the output level for each rm operating in the industry would (increase?, stay the same?, decrease?). (c) What if the government imposes a tax, l, on every rm in the industry. Draw the new cost conditions on the above graph using black ink. After the industry has adjusted to the imposition of the tax the competitive model would predict the following: the market price would (increase?, decrease?) , there would be (more?, the same?, fewer?) rms operating in the industry, and the output level for each rm operating in the industry would (increase?, stay the same?, decrease?)