Product X is sold in a perfectly competitive, constant-cost industry.

a. Draw a side-by-side graph for product X showing the market in long-run equilibrium with an individual firm earning normal profit. Label each of the following:

i. The market's equilibrium price (P_E) and quantity (Q_E)

ii. The firm's profit-maximizing quantity (Q_E)

b. How would it affect the quantity sold or transacted if the government imposed a price ceiling above P_E?

c. The price of Z, a substitute for product X, increases. Illustrate on your graphs from part (a) the result of this in the short run.

i. Label the new market price (P₂) and new market quantity (Q₂).

ii. Shade completely any profit or loss for the firm.

d. The price of Z increased by 20 percent, while the quantity demanded of X changed by 40 percent. What is the cross-price elasticity of X and Z?

e. What happens to the productive efficiency of the firm in the short run as a result of the change described in part (c)?

f. What will happen to the price of X in the long run? Explain.

g. In long-run equilibrium, the individual firm produces 100 units of X. At that level of output, its total cost is $500. If the firm is earning normal profits, what must be the market price?

h. The whole market from part (g) clears at a quantity of 1 million units in the long run. If the constant long-run supply would intersect the y-axis at $1 and the demand curve intersects the y-axis at $9, what is the consumer surplus?