In the early 19905, a study found that moderate daily consumption of red wine reduced the incidence of heart disease in laboratory rats. As a result of national press coverage of the report, the demand for red wine increased dramatically. Assume that the red wine market satises all of the attributes of perfect competition. Further assume that red grapes are the most expensive input into the red wine production process. (a) Draw a graph of the market for wine to demonstrate the effect of the report on market equilibrium. Consider only short-run results. Explain your answer. (6 marks) (b) Graph the initial reaction of individual incumbent firms to the increase in market demand. On your graph, identify the rm's revenue and cost structure, including the marginal cost and average total cost curves. Ensure that your graph shows the prot region. Will this result last? Briey explain why prot occurs. {6 marks) In the secluded town of Reitsville, a real estate consulting rm called Top Realty provides land developers with advice and guidance for large scale commercial development projects. They are the only firm that provides this service in Reitsville, giving them a monopoly on the market. Top Realty charges each of its clients the same, fixed rate for its services. Students should assume a horizontal marginal cost line for the purpose of answering this question. (a) Draw the marginal cost, demand, and marginal revenue curves for the monopolist. Show the price Top Realty would charge to its clients and the quantity it produces. {.5 marks) 03} In your diagram from part (a), mark the area equal to Top Realty's prot and label it A. Mark the area equal to consumer surplus and label it B. Mark the area equal to the deadweight loss and label it C. What is total surplus equal to? (State your answer in terms of areas A, B, and C.) (4 marks) (c) Now suppose that Top Realty can perfectly price discriminate. They achieve this pricing their services based on the exact needs of the client, so each client receives a different price. What quantity will they produce? What is Top Realty's prot? (State your answer in terms of areas A, B, and C.) (4 marks) (cl) What is the change in the Top Realty's profit from price discrimination? What is the change in total surplus from price discrimination? Which change is larger? Explain. (State your answers in terms of areas A, B, and C.) (Emarks)