1. Graphically illustrate what that would look like for Joe and all of the other apple farmers. For perfect competition, always use side-by-side graphs (one graph for the market and one graph for the firm). Here is a good example starting graph:
2. Then, suppose that there is a water shortage on Joe's farm and he must now purchase water to irrigate his farm. Add to your graph for 1.a. showing how these increased costs will affect Joe's profit or loss in the short-run. Note that the short-run effects are seen first by the firm. You will need to shift the firm's costs curves appropriately. Label each curve ATC1 and ATC2, MC1 and MC2, and so on. (You do not need to put AVC on this set of graphs. You will sometimes see AVC on graphs, but this is usually done when there is a question of whether the firm needs to shut down.)

2. Now, assume that all the apple farmers in his region begin to suffer water shortages.

1. Graphically illustrate the long-run implications of this development in the apple industry. As more and more firms' profit/loss situation adjusts to the new situation, this will eventually affect the market equilibrium (market graph) as firms enter or exit the market. This will bring the market back to long run equilibrium. The LL recording walks you through this process. Explain what the firm's profit/loss situation is in the long run.
2. Briefly explain what long run equilibrium is for a perfectly competitive firm. (This is asking whether the firm can make long run profits.)