Show, using only the industry demand and long-run supply curves (for an increasing cost industry), the effects on price and output of an excise subsidy paid to the firms.

A. Show, using only the industry demand and long-run supply curves (for an increasing cost industry), the effects on price and output of an excise subsidy paid to the firms. Who benefits from the subsidy?

B. Can you think of any type of subsidy that, if given to firms in a competitive market, would in the long run benefit (the owners of) the firms? Why wouldn’t entry of new firms into the subsidized market always occur until economic profits are zero?

Expert Solution

Rahul Sunny answered 2 years ago

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