The Wall Street Journal article, "Warehouse Rents Slipping on Declining Demand," (WSJ, April 12, 2024) describes dynamics in the market for warehouse space over the past 5 years (2019 to 2024). (You do not need to read the article in order to answer these questions. We will provide you with all relevant information in question directions). In Questions 1 through 7, you will analyze this market. Please do not make any additional assumptions other than what is already described in the question settings.

Assume that in 2019 the market for warehouse space was in long-run equilibrium. Using a side-by-side diagram, with market on the left and individual (representative) firm on the right, illustrate long-run equilibrium in this market, assuming that it is perfectly competitive. Label the initial market supply (S0) and market demand (D0) curves and individual firm's ATC0, AVC0, and MC0 curves. (There is no need to include the AFC curve in your drawing.) Label the equilibrium price P0, market quantity Q0, quantity produced by the individual (representative) firm q0, and representative firm's profit 0. If any of these cannot be illustrated in the diagram, clearly state their values. Please make sure that you appropriately label all axes in your drawing.

According to the WSJ article, "Demand for storage space skyrocketed in 2020 as companies raced to position goods for rapid delivery to homes. E-commerce giant Amazon.com, for instance, doubled the size of its fulfillment network in 24 months as its business surged."

Using the same side-by-side diagram you've used when answering Question 1, illustrate the short-run impact of an increase in demand for warehouse space.

• Label any new or shifted curves with subscript 1.
• Label the new short-run equilibrium price P₁, market quantity Q₁, quantity produced by the individual (representative) firm q₁, and representative firm's profit ₁. If any of these cannot be illustrated in the diagram, clearly state their values.