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Microeconomics

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Cost of Entry and Long Run Price

MICRO-JJLPNX

Say that a government increases the costs of entry into a perfectly competitive market.

For example, say the local government of a certain town makes it harder for bars to obtain a liquor license by introducing more red-tape or restricting the number of licenses awarded.

What effect is this MOST LIKELY to have on the long run price in this market?

A

The long run price will go up.

B

The long run price will go down.

C

The long run price will stay the same.

D

Anything might happen - the model of perfect competition does not make a clear prediction about such an effect.