Homework #5 1. Suppose there is a selective per-unit tax placed on the sale of wine, but not on beer. What effect will this tax have on wine firms and on the wine market and on the beer market, in both the short and the long-run? Use words and graphs in your answer. Who bears the burden of this tax? 2. Suppose there is a change in taste so that people prefer more beer and less wine. Show using words and graphs what happens in the short-run and the long-run in both industries. 3. There is a grape blight which kills many grape vines and drives up the price of grapes. What effect will this have on wine firms and the wine market and on the beer market in both the short- and the long-run. 4. Use graphs to illustrate the monopoly profit maximizing equilibrium. Show the monopoly supply curve on your graph. What will happen in the long-run if the monopoly is earning positive economic profits? How may this outcome be avoided? Is the monopoly profit maximizing output efficient? Why? Why not? 5. Derive a long-run industry supply curve for a price-taker industry. Use graphs. Is the long-run supply curve more elastic, less elastic or of equal elasticity when compared to the short-run supply curves? Why? 6. Suppose the price of wine grapes goes down. What effect will this have on wine firms and on the wine market? Use graphs and words to show what happens in the short-run and the long-run. Also show the effect on the beer industry. 7. Why does the firm's long-run average cost curve have a U-shape?

Homework #5 1. Suppose there is a selective per-unit tax placed on the sale of wine, but not on beer. What effect will this tax have on wine firms and on the wine market and on the beer market, in both the short and the long-run? Use words and graphs in your answer. Who bears the burden of this tax? 2. Suppose there is a change in taste so that people prefer more beer and less wine. Show using words and graphs what happens in the short-run and the long-run in both industries. 3. There is a grape blight which kills many grape vines and drives up the price of grapes. What effect will this have on wine firms and the wine market and on the beer market in both the short- and the long-run. 4. Use graphs to illustrate the monopoly profit maximizing equilibrium. Show the monopoly supply curve on your graph. What will happen in the long-run if the monopoly is earning positive economic profits? How may this outcome be avoided? Is the monopoly profit maximizing output efficient? Why? Why not? 5. Derive a long-run industry supply curve for a price-taker industry. Use graphs. Is the long-run supply curve more elastic, less elastic or of equal elasticity when compared to the short-run supply curves? Why? 6. Suppose the price of wine grapes goes down. What effect will this have on wine firms and on the wine market? Use graphs and words to show what happens in the short-run and the long-run. Also show the effect on the beer industry. 7. Why does the firm's long-run average cost curve have a U-shape?