A competitive industry is in long-run equilibrium. Then a sales tax is placed on all firms in the industry. What do you suppose to happen to the price of the product, the number of firms in the industry, and the output of every firm?
Along with the imposition of sales tax on all of the firms, the marginal cost curve for each firm will shift up and to the left by the amount of the tax, and consequently the market supply curve shifts up and to the left. The shift supply curve will increase the price of the product and decrease the quantity supplied by each firm, in the market. In the short run firms will continue to generate as long as price is above average variable cost. In the long run, some firms might exit if price falls below the new long run average cost curve that has shifted up by the amount of the tax. As firms exit, the supply curve will shift up and to the left, resulting in higher price and lower quantity supplied.