Please answer the following questions

Free Response Questions 1} Suppose we have firms operating in a perfectly competitive market for shoes. All the firms in this market have identical costs. However, one ofthe hey inputs to produce shoes is in iimited quantity so the number ofnns in this market streets eoehnn 's cost (that is if there are more rms in the market, enehnn 's ms! widget up}. Now suppose that the market is in its long~nm equilibrium level. Due to a sudden increase in consumers' income the demand for shoes increases. a) Draw two diagrams [one for a typical rm and one for the market as we did in class] to show what happens to market price and a typical firm's output and prot levels in ie short~run. {Hint You need to hove the necessary cost curves in your diagram for the rm} h) 011 different diagrams similar to ones in part {a}, show and explain what happens to market price, rm profits, and firm cost curves in the longrun. {Hint Ewe Jyoti cannot show it, just etptoinforportioi credit] o) What does your longvrun market supply curve look like? (Hint: Even tfyou don 't have n compie'te answer JFor port {It}, you one write what you expect tong-run supp-{y curve to fool: iike given the infomotion given in the question trfuii credit in this port) 5} Suppose that the goverm'nent implements an \"Investment Tax Credit" for rms a} Show the effect of this polio}:r on interest rates and investment on a diagram b] As you showed in part {a}, the model of the market for loanable Jnds implies that this investment tax credit will cause interest rates to rise and investment to rise. Yet we also learned that higher interest rates lead to lower investment. How can these two conclusions be reconciled