6. Suppose that the market for dry-erase pens is perfectly competitive and that the pens cost $1 each. The industry is in long-run equilibrium.

Now suppose that an increase in the cost of ink raises the production cost of the pens by $.25 per pen.

a. Using a graph that shows the market as a whole and a typical firm in this market, illustrate the short run effects of the change.

b. Is the price likely to rise by $.25? Why or why not?

c. If it doesn’t, are firms likely to continue to operate in the short run? Why or why not?

d. What is likely to happen in the long run? Illustrate your results with a large, clearly labeled graph