Imagine you are an entrepreneur in the perfectly competitive gizmo market.

1.) First, draw a graph for the individual gizmo manufacturing firm using the market equilibrium price, average cost curve, and marginal cost curve. Assume we are in the long run and they are breaking even.

2.) Next, draw a graph showing the whole market supply, market demand, and equilibrium price and quantity of gizmos. Line up the two graphs up next to each other.

3.) Now suppose that a crucial component used in the manufacturing of gizmos becomes cheaper. What impact will this have on a gizmo firm in the short run? (in terms of the firm's revenues, costs, and profit) Show graphically. Are they making a profit, loss, or breaking even?

4.) Finally, how will the overall gizmo market be affected? What will happen to the firm's profit/loss in the long run? Why?