You are a builder of fiberglass boats in very competitive markets. Fiberglass is derived from crude oil which has recently risen in price.
a. Using diagrams, show what happens to the cost curves of your firm and to the market supply curve due to the increase in oil prices.
b. What will happen to the equilibrium market price and quantity? How will the firm’s sales be effected?
c. What happens to the profits of your firm in the short run? What happens to the number of boat builders and your firm’s profits in the long run?