Venus Ltd was finalizing plans for a brick factory. The variable and fixed costs would have been identical to those of Sol Inc.s existing brick factory. The only difference between the two companies was the Sol had already sunk the fixed cost of its plant, while Venus had not. Then, an industry analyst forecast that, due to expansion of supply, the long-run price of bricks would fall by 20 per cent. Venus suspended all investment plans. By contrast, Sol announced that it would continue production. Venus and Sol are so small relative to the market that each can sell as much as it would like at the market price.

a. Explain the short run break-even condition b. Explain the long run break-even condition c. Suppose that the new long-run price is less than Venuss average cost but higher than Sols average variable cost. Explain why the two companies came to different decisions.