I really do not understand this question on my problem set... could you help?

Sigchi4life
Category:
Economics
Price: $5 USD

Question description

Part ii) Suppose that the sports shoe market is a monopolistically competitive market in long run equilibrium.  The National Coalition for Stylish Sneaks, an industry run lobbying group, convinces thegovernment that wearing sports shoes encourages exercise and should be subsidized (despite there being no actual positive externality).  This industry starts in a long run equilibrium.

a) Show the short run effects of this graphically being sure to label your price, quantity, consumer surplus, profits, and deadweight loss in the short run.  Briefly explain the SR effects of the subsidy from your graph on profits, quantity, price, and how any shifts occur.  In general in the SR, what effect does the subsidy have on DWL?

b) Show the long run effects of this graphically being sure to label your price, quantity, consumer surplus, profits, and deadweight loss in the long run. Briefly explain the LR effects of the subsidy from your graph on profits, quantity, price, and how any shifts occur.  In general in the LR, what effect does the subsidy have on DWL?


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