Assume that corn market is perfectly competitive in Canada. Further assume that there are numerous firms and all firms are identical to each other. Note that corn can be used to produce ethanol, which can be added to gasoline.

a) Draw a pair of graphs illustrating the market for corn (with market demand and market supply curves) and a representative firm's long-run situation with breakeven.

b) Now assume that policymakers pass a law requiring that all gasoline sold in Canada contain at least 10 percent corn-based ethanol. In the graphs above, illustrate the short-run effects of this law. In particular, show how the law would affect

the short-run equilibrium in the market for corn,

the short-run demand curve faced by the representative firm, and

the representative firm's short-run profit-maximizing level of output.

Label the new curves and equilibrium values using a subscript 2.

c) Next, graphically illustrate how, after the initial changes you illustrated in question 4(b), the corn market and the representative firm would adjust back to long-run equilibrium. Label any new curves and equilibrium values using a subscript 3. After all adjustments have taken place, what has happened to the equilibrium market price, the number of firms operating in the market, and the representative firm's profits? Why?