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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?


Output and price will both increase.


Output and price will both decrease.


Output will increase, and price will decrease.


Output will decrease, and price will increase.


Output and price will remain unchanged.

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