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Suppose perfectly competitive market conditions are characterized by the following inverse demand and inverse supply functions: P = 100 - 5Q and P = 10 + 5Q. The demand curve facing an individual firm operating in this market is:
A P = 100 - 5Q.
B a horizontal line at $9.
C a horizontal line at $55.
D P/N = (100 - 5Q)/N, where N is the total number of firms in the competitive market.
Discuss the reason why governments might want to intervene and how they might do- with respect to the following "problem" in the functioning of an otherwise perfectly-competitive ("pareto-efficient") economy:
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