10. (10 points) Consider a monopolistically competitive market with 40 artists, or firms, each selling a similarly type of art (for example, hand-painted portraits), so that it is reasonable to suppose that the artist/firms' costs are somewhat similar and while products are differentiated, consumers nevertheless choose among all of the 40 artists/firms. Suppose the cost of raw materials is 50 per unit produced, and that the artist's labor cost is 150 per unit produced, so marginal cost is 200 per unit. And suppose that each artist can produce at most one piece of art per week or 50 pieces of are year. And assume the artist/firm's fixed costs are $18,000 per year. Assume that with 40 artists in the market, each artist/firm faces an individual artist/firm demand equal to Q = 120 0.1P, so each artist's/firm's inverse demand is P = 120010Q and each firm's marginal revenue is MR = 120020Q.

(a) What does each artist's annual supply curve look like? That is draw a graph with $/unit on the vertical axis and quantity/year on the horizontal axis that shows how much the firm would supply if P < 200, P = 200, and P > 200.

(b) Suppose each artist charges $700 per portrait. What is each artist's annual sales, and what is the total sales (by all portrait artists)?

(c) Is $700 the profit-maximizing price? If not, then what price maximizes each artist's profits? (d) Suppose demand grows significantly (for example, suppose that at a price of $700 demand grows by 20%). What do you think will happen to price in the short run? What about in the long run?