Assume we have perfectly competitive firms making abnormal profits in the short run. Explain what, if any, each of the following government actions will have on the short run output of each firm, assuming that none of the actions is so severe as to make the firm shut down. Use a graphical model to demonstrate each of the following effects.
a. A licence fee to be paid for the privilege of operating and which does not depend on the level of output.
b. A proportional tax on profits, say 50%.
c. A tax on every unit of output produced that is equal to a constant dollar value.
a. A licence fee to be paid for the privilege of operating and which does not depend on the level of output.
b. A proportional tax on profits, say 50%.
c. A tax on every unit of output produced that is equal to a constant dollar value.