please only solve parts d, e, and f! 2. The economists were ultimately interested in whether businesses were affected by supplychain disruptions (i.e., inputs becoming more expensive) or by disruptions resulting fromdemand shocks (people stopped buying some services, stayed home more, etc.). ¹According to the surveyed firms, the researchers found that, as of July 2020, demandshocks, as opposed to supply chain disruptions, were prominent in decisions made bysmall business firms.The researchers were interested in the decision to close temporarily or completely. Theyfound that, across the sample of surveyed firms: "41.3% of businesses reported that theywere temporarily closed because of COVID-19. A far smaller number-1.8%-reportedthat they were permanently closed because of the pandemic. By contrast, only 1.3%reported that they were temporarily closed for other reasons; 55.5% reported that theywere still operational."Let's say many of the small businesses surveyed in July 2020 were local restaurants thatsaid they were temporarily closed. Fixed inputs are the building and equipment to makefood; the variable inputs are employees, cook, clean, serve. Assume local restaurantsoperate in a perfectly competitive industry. All restaurants have the same cost structure.a) Use two diagrams (one for the market for restaurants with supply and demand, andone for a typical restaurant with ATC and MC) to show the market in equilibrium.Why is this an equilibrium?b) Using your diagrams in (a), show how a decrease in demand can lead existingrestaurants to decrease the quantity of meals and make an economic loss. Be sure toclearly label the break-even price, cost curves, MR curve, area of economic loss.Will the decrease in demand lead a restaurant to shut down? Briefly explain theeconomic reason for your answer.c)d) Use one new firm diagram with ATC, MC, and AVC to show when a decrease indemand will not lead a firm to shut down. Be sure to clearly label the diagram,relevant points and areas.e) In the long run, what is the effect of the decrease in demand on the equilibrium priceand quantity? Use new market and firm diagrams to defend your answer.f)How does the new equilibrium compare to the old equilibrium in terms of number offirms and quantity produced: in other words, are there more, fewer, or the samenumber of firms; do existing firms produce less, more, the same?

The cost curves are drawn in the following diagram. Fig 1 If the…

Use one new firm diagram with ATC, MC, and AVC to show when a decrease in demand will not lead a firm to shut down. Be sure to clearly label the diagram, relevant points and areas. In the long run, what is the effect of the decrease in demand on the equilibrium price and quantity? Use new market and firm diagrams to defend your answer.

Use one new firm diagram with ATC, MC, and AVC to show when a decrease in demand will not lead a firm to shut down. Be sure to clearly label the diagram, relevant points and areas. In the long run, what is the effect of the decrease in demand on the equilibrium price and quantity? Use new market and firm diagrams to defend your answer.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.12P

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