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AP® Microeconomics

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Perfect Competition: LR Impact of Lump-Sum Subsidy on Output

APMICR-TC441Y

The wool industry is perfectly competitive and currently in long-run equilibrium. The government grants a lump-sum subsidy to firms operating in the wool industry. Assuming the government continues to provide the lump-sum subsidy, what do economists predict will happen to the profit-maximizing output and price for individual producers of wool as it adjusts to a new long-run equilibrium?

A

Output and price will both increase.

B

Output and price will both decrease.

C

Output will increase, and price will decrease.

D

Output will decrease, and price will increase.

E

Output and price will remain unchanged.