Perfect Competition in the Long Run

Suppose the market for electricity-generating solar panels is perfectly competitive and is initially at its long run equilibrium. Assume people are allowed to install solar panels on their homes to generate electricity.Also assume the typical firm producing solar panels has U-shaped average total cost (ATC) and Marginal Cost (MC) curves.

A:Draw the market supply and demand curves for solar panels and the associated Marginal Revenue, MC and ATC curves for the typical firm. Clearly label the initial equilibrium market price (P0), market quantity (Q0), and the quantity produced by the typical firm (q0).

Suppose now that Manitoba Hydro doubles the price of hydro electricity. Show on your graphs the impact this with have in the short run on equilibrium P, Q and q. Clearly label as P1,Q1 and q1. Explain in words (full sentences) what is happening

Show on your graph and explain in words (full sentences) how and why the market will adjust in the long run. Clearly label the new P2,Q2 and q2