Widgets are sold by a constant-cost industry where each firm has fixed costs of $60 and each firm has the following marginal cost curve: Quantites (widgets): 1,2,3,4,5,6. Corresponding MC ($): 10 20 30 40 50
In long run equilibrium, what is the price of a widget? The city would like the price of widgets to change. Plan A is to give each firm a fixed subsidy each year; Plan B is to give each firm an excise subsidy (that is, a subsidy per widget). b) Which plan is more effective in the short run? c) If the city wants the long run price of a widget to be $20, what is the amount of the per-firm subsidy it must offer under Plan A? d) If the city wants the long run price of a widget to be $20, what is the amount of the per-widget excise subsidy it must offer Plan B? e) If the city wants the long run price of a widget to be $20, which plan is more expensive?