In the Long Run, a Tax Placed on a Perfectly

question 4

Multiple Choice

In the long run, a tax placed on a perfectly competitive industry should

• A)Increase the number of firms
• B)Decrease the number of firms
• C)Not affect the number of firms
• D)One cannot tell

---

Definitions:

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume.

Variable Expenses

Costs that vary directly with the level of production or sales volume, such as raw materials or sales commissions.

Margin of Safety

The difference between actual sales and the break-even point, indicating the extent to which sales can decline before losses begin.

Net Operating Income

The profit a company generates from its core business operations, excluding expenses and revenues from non-operating activities.