Perfect Competition with graphs.
A perfectly competitive market with a large number of identical firms is in a long run equilibrium, where the price is equal to the minimum of the average cost curve. Firms have an upward sloping marginal cost and a U shaped average total cost.
a) Draw the market supply and market demand in one graph. Next to it, draw the situation of one firm, with the average total cost, the marginal cost, and the price (which under perfect competition is the marginal revenue).
Suppose that suddenly there is an increase in the demand for this product (it became more popular).
b) How does the market adjust in the short run? What happens with the price, the quantity produced by each firm, the profits of each firm, the number of firms in the market and the total quantity produced by all firms?
c) How does the market adjust in the long run? What happens with the price, the quantity produced by each firm, the profits of each firm, the number of firms in the market and the total quantity produced by all firms?