Problem $4$:

The smartphone industry is perfectly competitive, with numerous identical manufacturers

producing similar smartphones. Key costs include labor, components $($such as processors

and displays$),$ and factory rent.

task$1.$ Is labor a fixed or variable cost in smartphone production? What about components?

Factory rent? Briefly explain.

The industry initially in along$-$run equilibrium where price equals full$-$reinvestment average

total cost $($FR$-$ATC$).$ There is a large pool of potential entrants who operate under cost

conditions identical to those of active firms in this industry. It takes about $24$ months to

build new smartphone manufacturing capacity inthis market.

Now, demand for smartphones unexpectedly surges due to a breakthrough in battery

technology, shifting the demand curve rightward. Additionally, the price of a key

component used in smartphone production $($e$.$g$.,$ a certaintype of display panel$)$

unexpectedly and permanently declines.

Consider the smartphone industry $18$ months after these events and compare it to the

initial situation. Assume the cost of capital remains stable at $8\%$ throughout the period. For

each variable listed below, determine if it is "greater than," "less than," "the same as$"$ it was

$18$ months ago, or $\text{'}$We can'ttell for sure from the information given. Briefly explain your

answer $($if helpful, consider using an appropriate diagram$).$

task$2.$ Market price ofsmartphones, Number offirms?

Now considerthe situation $36$ months after the changes occur. For each variable below, determine

whether it is greater than, equal to$,$ or less than its value at the initial long$-$run equilibrium. Briefly

explain your answer $($consider using an appropriate diagram$).$

task$3.$ Market price of smartphones?

task$4.$ Number of firms?

task$5.$ The initial long$-$run supply curve is drawn below. Draw the new long$-$run supply curve on the same

graph and briefly explain why it differs from the initial long$-$run supply curve?