Questions 5, 6, and 7 consider the maritime shipping market (large container ships and oil tankers). The October 20, 2020 issue ofThe Economistfeatured an article titled "How Covid-19 Put Wind in Shipping Companies' Sails." (You do not have to read this article to understand the setup of questions 5, 6, and 7.) The article reports that the onset of the pandemic has caused a large boost to demand for maritime shipping, pushing maritime shipping prices to reach a ten-year high.

Assume, for purposes of Questions 5, 6, and 7, that this market is currently a perfectly competitive market with the following conditions: 1) Downward sloping market demand; 2) Upward sloping market supply; and 3) U-shaped Average Total Costs and Marginal Costs for individual firms.

Question 5:

You should assume the shipping industry is initially in Long Run Equilibrium prior to the arrival of Covid-19.

Graphically depict (using side-by-side graphs, with the graph on the left showing the market and the graph on the right showing an individual supplier/producer representative of the rest of the firms):

• the perfectly competitive supply and demand curves (S₀andD₀, respectively) and the market price and quantity (P₀andQ₀respectively)
• an individual firm's marginal revenue (MR), marginal cost (MC), average total cost (ATC) curves, the profit maximizing quantity (P₀andq₀), and profit (₀) before the arrival of Covid-19. If there is no profit, please indicate so on the graph.
• Provide a brief narrative explaining the profitability of an individual firm in an LRE.