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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?


The long run price will go up.


The long run price will go down.


The long run price will stay the same.


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

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