8. Suppose we imagine that bars in Madison Park can be characterized
as a monopolistically competitive industry with free entry. Suppose
that the legal drinking age is lowered to 19. Our best short run prediction is that: (Unfortunately there seems to be evidence
that such changes lead to increased numbers of alcohol related
highway deaths)
- bars will increase prices to keep out the new drinkers.
- bars will experience a reduction in profit due to the increased
costs of serving more patrons.
- bars will become more profitable due to the increase in demand.
- more bars will be opened.
- many bars will close.
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