A perfectly competitive industry that produces microchips consists of many firms that can produce 100 microchips per day at a minimal average cost $0.50 per microchip. Each firm must also pay shipping fees for its production, and the shipping fee s per each microchip is an increasing function of the total industry output Q: s = 0.0001Q. The demand for microchips is given by Q = 6, 000 1, 000p, where p is the price of a microchip.

(a) Let the microchip industry be in a long-run equilibrium. What is the equilibrium price of a microchip? How many microchips are produced? How many firms are there in the industry? What is the shipping fee per microchip?

(b) Suppose that the demand for microchips increases to Q = 7, 100 1, 000p. 4 In a new long-run equilibrium, what is the equilibrium price of a microchip? How many microchips are produced? How many firms are there in the industry? What is the shipping fee per microchip?

(c) Plot these two long-run equilibria in the market for microchips. Carefully mark all relevant values. Calculate the change in the producers' surplus between the situations described in (a) and (b).

(d) Show that the increase in the producers' surplus equals to the increase in the total shipping costs as the industry expands incrementally from the equilibrium output in (a) to the equilibrium output in (b).

(e) Let the demand for microchips be as in part (b). Suppose that due to shortages in containers, the shipping fee per microchip becomes s = 0.0002Q. In a new long-run equilibrium, what is the equilibrium price of a microchip? How many microchips are produced? How many firms are there in the industry? What is the shipping fee per microchip? (f) How will the burden of this shipping fees increase be shared between consumers and producers? What will be the changes of consumers' and producers' surplus the total shipping fees? How will the total welfare be affected?