2. Assume that builder XYZ is a monopoly in Sydney's Southwest, who specialises in apartment construction.

(a) Draw a diagram to illustrate XYZ making economic profits before the interest rate increases. On your diagram clearly indicate the quantity XYZ is choosing to produce and the price XYZ is choosing to charge.

(b) Assuming costs of building materials remain constant resulting in no change to the builder's cost curves, explain the impact of interest rate rises on builder XYZ's demand from Q2 part (a). With the aid of a new diagram, discuss XYZ's profit or loss situation after these changes. On your diagram clearly indicate the quantity XYZ is choosing to produce and the price XYZ is choosing to charge.

(c) Assume that XYZ stays in business. If the NSW government decides to double the first home buyer's grant, explain the impact on XYZ's demand. With the aid of a new diagram, discuss XYZ's profit or loss situation after this change takes place. On your diagram clearly indicate the quantity XYZ is choosing the produce and the price XYZ is choosing to charge.