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In: Economics

4. Draw a two-panel model (graph) for a firm producing and selling good X in a...

4. Draw a two-panel model (graph) for a firm producing and selling good X in a purely competitive market. In the first panel show the market for good X; in the second panel show the firm in long run equilibrium.

·         Show the effects of an increase in demand for good X in this market. Show the effects of a decrease in demand for good X in this market. What conclusions can be drawn from this model?

·         Under what condition will a competitive firm earning a loss (a negative profit) continue to operate in the short run? Under what condition will the same firm shut down? Demonstrate these conditions graphically.

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