If higher taxes raise the unit cost of a competitive industry, then producers
A)decrease production in the short run and the number of producers decreases in the long run.
B)decrease production in the short run and the number of producers increases in the long run.
C)increase production in the short run and the number of producers decreases in the long run.
D)increase production in the short run and the number of producers increases in the long run.
E)keep production constant in the short run and the number of producers remains the same in the long run.

Question

Quizplus · Accepted Answer

Higher taxes raise the unit cost of production, making it more expensive for producers to produce their goods. This results in a decrease in production in the short run as producers may not be able to cover the increased costs. In the long run, the number of producers may decrease as some producers may exit the industry due to the higher costs. Therefore, choice A is the best answer.

If Higher Taxes Raise the Unit Cost of a Competitive