1. Consider Caroline's Closet, which sells boutique clothing in a busy mall in a major city. The mall contains several other clothing boutiques.

a) Draw a graph showing the marginal cost, average total cost, demand, marginal revenue, and profit maximizing price and quantity for Caroline's Closet, assuming Caroline's current profit-maximizing price is greater than average total cost. Label the areas representing profit and deadweight loss.

b) How would demand at Caroline's be impacted in the long run due to entry or exit from this market?