a) Using both market and firm graphs for a perfectly competitive industry, show the effect of an increase in consumers’ income taxes. Assume the representative firm and market begin in long run equilibrium. Illustrate the short run effect on price, output, and profits, assuming this firm does not shut down. Label your graphs and explain your answer.
b) Assuming the representative firm does not withdraw from the market, show the long run effect on price, output, and profits. Label your graphs and explain your answer.