Suppose there are 300 ice-cream shops operating in Canberra. The market demand curve for ice-cream slopes downwards and the market for ice-cream is in the long-run competitive equilibrium.

a. Each shop has the usual U-shaped average total cost curve. Draw the current equilibrium for the entire market and for a representative firm.

b. Suppose the government imposes a tax, t, on production of ice-cream. Show the impact of a tax on the quantity supplied of a representative firm and the quantity sold in the market in the short-run and in the long-run using appropriate diagrams.

c. What will happen to the number of firms operating in the long-run?