There is a perfectly competitive market for product G, with an initial short-run equilibrium that has a market price of P₀ and a market quantity of Q₀, as shown in the graph below.The market has a standard downward-sloping market demand curve, and a standard upward-sloping market supply curve.

Then there is exit of about 10 percent of the firms in the industry.The market changes to a new short-run equilibrium.

Statement to evaluate:Comparing the new short-run equilibrium to the initial short-run equilibrium:The exit of firms leads to a smaller change in the market quantity if the

price elasticity of supply is 1.3 than if the price elasticity of supply is 0.7.

[In your answer, use the graph below (and/or draw and use one or more other graphs like it), adding any lines, curves, or labels that you need.]

If barriers to entry into an oligopoly industry are sufficiently high, then the large established firms in the industry will reach a tacit agreement about pricing.

$/unit Pot- - - - - -- - - Qo units