The Market for Chocolate Cookies Is Comprised of Two Types

(a) As the question says the securities industry for chocolate cookies is belligerent thus, this complies with the grocery structure of Perfect challenger where in that respect are a swelled number of buyers and sellers in the commercialize. The rudimentary characteristics of a Perfect Competition merchandise structure are that there is blameless knowledge on some(prenominal) sides of the market that is buyers and sellers know what the current market hurt is and thus, it prevents exploitation of the con agreeers as producers would not be able to charge unfair bells.This is because each steadfastly produces an insignificant fraction of the total market interpret and therefore is ineffective to uphold price, it is for this reason that each firm in perfect rivalry is known as a price taker. There are no barriers to entry or pop off in a perfectly competitive industry and thus, producers can enter or exit the market without all(prenominal) restrictions and thus, with out any significant spilles. The intersection of call for and supply curves of the industry determines the sense of balance price a typical producer can charge which similarly become the demand of the firm.Due to this, the producers cannot exploit the con warmnessers by charging a high price and thus, the price is al personal manners at the equilibrium. This is because if the producers charge a higher price, the demand for the product becomes zero, because the consumers can always switch to anformer(a) producer as the good is homogenous. (Anderton, 2000) Since the Firms in Perfect Competition are Price takers so they both take the current market price, Pe as shown in the graphical recordical record where the Market Demand and Supply intersects and form the Market equilibrium.D0 can be assumed as the Total Demand of burnt umber Cookies in the market and S0 can be assumed as the Total Supply of the umber Cookies in the Market. Not for amplification governing bodys (NPOs) issu e forth comprise (ATCn) is higher than the mean(a) Cost of wampum Making Organisations, that is ATCp, because Not for wage organisations (NPOs) employ disabled people and their price is as well high because Profit Making Organisation are making use of Capital Intensive technologies thus, more of their doing is automated and they employ fewer workers than the NPOs. total Cost of the Profit Making Firms (ATCp) is friction match to the market Price (Pe) so they are making a ruler Profit estimable because of higher productivity due to which their represent is reduced. A firm exculpates a Normal Profit when its total Economic Cost, which is come Cost in other haggle, is equal to the price firm is charging. In other words it can be said that the firm is making zero sparing profit. A firm makes a super practice profit when its Average Cost (economic cost) is lower than the price it is charging. The NPOs initially in the footling surpass are making a loss since their Ave rage Cost (ATCn) is greater than the price (Pe) charged.A profit making firm may also make a super expression profit but in the abruptlyly spiel only, in the dour run it can only make a normal profit or a zero economic profit. NPOs pass on be following a cost minimizing price, marginal cost price. (b)(i) A lump sum tax income is a quick-frozen amount that is charged as tax irrespective of a businesss profit, sales revenue or capital. According to Mankiw (2009), A lump sum tax is the most efficient tax possible because the businesss decisions do not alter the tax owed, the tax does not causes any dead weight losses and does not distort any incentives.Since, there is a fixed amount payable as tax so there is no administrative expense of hiring tax lawyers and accountants. Short run is the time period when at least one inputs in the product process is fixed and the rest are variable. Usually in the niggling circuit run, the variable input is labour and the fixed input is capita l. In the short run, it is assumed that producers can only alter performance by changing the variable inputs rather than any fixed inputs. In the short run, active firms do not exit the market.When the governing imposes a lump sum tax on the profit making corporations in a perfect competition, it disturbs the market structure of Perfect competition. It challenges the basic theory of Perfect Competition which says no barriers to entry and exit to and from the market. There is no government incumbrance usually in a perfectly competitive industry since it changes the basic characteristics of the Market Structure. However, after the government decides to impose a tax on the profit making firms only then the Market Structure of the Chocolate Cookies Industry does not remains a ure perfect competition, the Industry has fold down characteristics with Perfect Competition but cannot be categorised under it merely because of the tax imposed. In the short run, the lump-sum tax moldines s only match the Average cost of the Profit Making firms while all other be and revenue must be constant if all other factors affecting costs/revenue remain constant. Hence, as shown in the graphical record above, The Average cost (ATCp0) of a Profit making firm leave accession depending on the amount of tax imposed by the government.In the graph above, the amount of tax has been assumed to be ATCp1-Pe which shows that the firm is making a loss after the ATCp0 shifts to ATCp1. If the market price is less than the Average varying cost of the profit making firm, that is the firm is operating below its shut down point (Price = Average Variable Cost) then the firm depart have to shut down production in the short run until there is a decrease in its average variable cost or an increase in the market price.But if in case, the market price is greater than Average variable cost but lesser than Average total Cost then the firm must continue production in the short run since it is cover ing its variable costs for now. (Mankiw, 2007) (ii) prospicient run is a time period when all the factors/inputs involved in the production process are variable. There are no fixed factors in the unyielding run. In the long run firms can exit and enter the market freely.The long run is primarily used to decompose production decisions for a firm and is also used to better run across economies of scale, diseconomies of scale, and long-run market supply. In the long run, there must be a lot of changes in the industry and must also affect the firms in many ways. Like most of the Profit making firms which allow be operating below the Shut down point (Price Average Variable Cost) must not have been able to survive and must have exit the market.That must only shrink the market supply of Chocolate cookies, if all other factors affecting supply remain constant. The diminish of supply will shift the Market Supply Curve (S0) to the left to the new Market Supply curve (S1) which must lea d to an increase in the equilibrium market price of the industry to Pe1. The new market price will result in NPOs making a supernormal, normal profit or at least covering more of its loss in the short run but making a normal profit in the long run, depending on the number of exits from the market which should diverge the change in market price.The graph below shows NPOs making a supernormal profit (Pe1-ATCn). It shows the Profit making firms also making a normal profit (Pe1 = ATCp1). Again, depending on the number of exits from the market and average costs of the firms, the profit of both the firms must vary. Since the NPOs now can make a Supernormal or at least a normal profit in the long run and will also get donations additionally so they must benefit their workers with all that extra profits earned.Their modify workers must earn much more than they were earning before in the short run and before the lump sum tax by the government was imposed. The NPOs may also employ addition al workers after earning extra profits. The workers of the Profit making corporation might be worse off in the short run and some workers which will be working in the firms which had to shut down due to higher Average Variable cost than the market price will be fired while others in the long run will be better off comparatively.It will be unfair for the Profit making firms in a way that they produce better quality cookies as compare to NPOs but stable NPOs are better off than the Profit Making Organisations in the long run. The consumers of the industry will be worse off in the long run, since they will have to pay a higher price just due to the lump sum tax imposed by the political science to make the NPOs better off in the long run.The tax core group of the Profit making organisations will be totally passed on to the consumers in the long run since they will have to pay the whole tax burden on the producers in the form of price. Word Count 1531 words without referencing Referenc es Heyne, P. , P. J. Boettke and D. L. Prychitko (2009). Economic Way of Thinking (9th Edition). Mankiw, N. G. (2009). Principles of Economics (5th Edition). Parkin, M. (2007). Economics (8th Edition).