You manage a company that competes in an industry that is comprised of four equalsized firms that produce similar products. A recent industry report indicates that the market is fairly saturated, in that a 10 percent industry-wide price increase would lead to an 18 percent decline in units sold by all firms in the industry. Currently, Congress is considering legislation that would impose a tariff on a key input used by the industry. Your best estimate is that, if the legislation passes, your marginal cost will increase by $2. Based on this information, what price increase would you recommend if the tariff legislation is passed by Congress? Explain.
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