Consider the market for solar power. Assume the the market is perfectly competitive and initially in long-run equilibrium; solar power sells for $0.25 per kwh (kilowatt hour, a unit of power).

a. Draw 2 graphs, one to represent the market (supply and demand), and one to represent a single firm (demand, marginal cost, and average cost curves). Assume a u-shaped average cost curve. Show the equilibrium price and the quantity produced by the market (Q) and by each individual firm (q).

b. Next, to encourage conservation, Congress taxes all forms of energy EXCEPT solar power, causing an increase in the demand for solar power. Show what happens to the market and the firm in the short run; indicate clearly what happens to price, quantity, and profit.

c. What happens to the market and the firm in the long run? Indicate clearly what happens to price, quantity, and profit for each market and the firm