(a) With reference to short-run cost concepts, explain why a firm may continue to operate in the short-run even if it is making an economic loss.

[3 marks]

(b) Consider a perfectly competitive industry. Explain in words what will happen in the long-run to market supply and/or demand, equilibrium price and quantity if many firms are making economic profits.

[3 marks]

(c) Now suppose all the firms in the perfectly competitive industry merge together to become a single monopolist. Explain what will happen to the price and quantity sold in the market. Also explain if you expect the monopolist to survive.