Suppose that the kringle industry is a perfectly competitive, constant cost industry and that the initial demand curve, D₀, and the initial SR supply curve, SRS₀, are as shown in the graph below.

1. Illustrate the kringle industry's long run (LR) supply curve. Assuming that the kringle industry is initially in both SR and LR equilibrium, illustrate (label) the initial market equilibrium quantity and price, Q₀* and P₀*.

1. Suppose that kringle and doughnuts are substitutes in consumption, independent in production, and the price of doughnuts increases. Illustrate and label the SR market equilibrium price and quantity, P_SR and Q_SR. At P_SR and Q_SR, are the SR profits of kringle firms positive, negative, or zero? Explain briefly

1. In the LR, will other firms enter or exit the kringle market? Explain. Illustrate and label the new LR equilibrium price and quantity, P_LR and Q_LR. At P_LR and Q_LR, are the LR profits of kringle firms positive, negative, or zero? Explain briefly.

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