Assume that the hard seltzer market is perfectly competitive and initially in long-run equilibrium at a price of $18 a 12-pack.

1. Which of the 4 characteristics of perfect competition seems the least likely to be satisfied in the hard seltzer market? Briefly explain.

2. Now suppose there is a decrease in market demand, causing the price to go down to $12. In response, BlackToeNail decreases its production from 2000 to 1400 units and is now suffering $11,200 in losses (negative profits) in the short-run. It has determined that it will minimize losses by continuing to produce rather than shutting down.

Draw a graph that is consistent with this information. Be sure to include the firms demand & MR curve and its Marginal Cost, Average Total Cost and Average Variable Cost curves. Label as many points as you can and indicate the losses (negative profits).

3. Now consider what will happen in the long run. For each of the following, state if it will increase, decrease or stay the same. Market price Number of firms Firm profits

4. A colleague asks you to be more specific about what you think will happen to long-run price. What do you need to know and how would it affect your prediction?