Problem 1: Short- & Long-Run Perfect Competition [12 Points] Suppose there is a firm that exists in a perfectly competitive market selling hot dogs. The shape of its cost curves are given by the figure below. [These are as in lecture). Assume that the firm begins by making positive profits in the short-run and we begin in Short-Run and Long-Run equilibrium. Costs AVC Q Now also suppose that the price of hot dog buns, a major compliment for hot dogs, decreases. Short-Run 1. Use both the short-run market supply and demand and the short-run individual firm cost curves to show what happens to market prices and individual firm production. |3 points] 2. What happens to individual firms' short-run profits for hot dog production? Explain your answer. [2 points] Long-Run 3. Would the quantity supplied by each individual firm in the long-run be expected to change? what happens to the number of firms in the Long-Run? Explain your answer. [2 points] 4. Finally, use Demand, Short-Run Supply, and the Long-Run Supply curve to show what happens to both [i) the market price, and (ii) total quantity supplied in the Short-Run and then in the transition to the Long-Run. [2 points] Now suppose instead of a price drop in a compliment for hot dogs, another event happened that leads to a decrease in the Long-Run market price for hot dogs. 5. Which curve would this change need to specifically affect for this decrease in long-run prices to come about? Explain your answer. Give an example of something that may cause this. [3 points]