In an effort to increase long run supply of output in a market, the government decides to implement policies that remove existing barriers to entry, so the market now has free-entry. At the same time, the government also implements policies that restrict exit from the market (e.g. firms must pay a sizable fee to exit the market). Proponents of the policies claim that allowing firms to easily enter the market, but not easily exit the market, will increase long run supply. Considering producer theory, will such policies have the desired consequences? Provide economic reasoning.
In an effort to increase long run supply of output in a market, the government decides to implement policies that remove existing barriers to entry, so the market now has free-entry. At the same time, the government also implements policies that restrict exit from the market (e.g. firms must pay a sizable fee to exit the market). Proponents of the policies claim that allowing firms to easily enter the market, but not easily exit the market, will increase long run supply. Considering producer theory, will such policies have the desired consequences? Provide economic reasoning.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In an effort to increase long run supply of output in a market, the government decides to implement policies that remove existing barriers to entry, so the market now has free-entry. At the same time, the government also implements policies that restrict exit from the market (e.g. firms must pay a sizable fee to exit the market). Proponents of the policies claim that allowing firms to easily enter the market, but not easily exit the market, will increase long run supply. Considering producer theory, will such policies have the desired consequences? Provide economic reasoning.
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