2006 FRQ #2- Profit Maximizing with Perfect Competition

The video tutorial explains cost analysis, focusing on fixed and marginal costs. It covers how to calculate marginal costs and determine the profit-maximizing quantity using the MR equals MC rule. The tutorial also discusses long-run market dynamics, including how profits influence market entry and exit. Finally, it examines the impact of taxes on equilibrium in a constant cost industry, emphasizing that in the long run, the market returns to its original state.

How does the entry and exit of firms in the long run affect the market equilibrium?

Discuss the impact of a $2 tax on a firm in a constant cost industry in the long run.