Answer the following question and submit to the appropriate space on Canvas. Be careful to completely and correctly label all of the parts of any graph you draw. Please be a neat as possible. 1. The AIA Car Wash is a representative firm in a purely/perfectly competitive, constant-cost market. The market is currently in a long-run equilibrium. a. Use the blank axes below to draw completely and thoroughly labeled side-by-side graphs for the car wash market and for AIA Car Wash. Make sure that you clearly indicate the price and quantity of car washes in the market and price and quantity for AIA Car Wash. b. Car washes are a normal good. As the result of a remarkably healthy economy, a large number of consumers get raises (larger paychecks). Use the graphs you drew above to show how the increase in consumer income impacts the following items in the short run: d quantity
Answer the following question and submit to the appropriate space on Canvas. Be careful to completely and correctly label all of the parts of any graph you draw. Please be a neat as possible. 1. The AIA Car Wash is a representative firm in a purely/perfectly competitive, constant-cost market. The market is currently in a long-run equilibrium. a. Use the blank axes below to draw completely and thoroughly labeled side-by-side graphs for the car wash market and for AIA Car Wash. Make sure that you clearly indicate the price and quantity of car washes in the market and price and quantity for AIA Car Wash. b. Car washes are a normal good. As the result of a remarkably healthy economy, a large number of consumers get raises (larger paychecks). Use the graphs you drew above to show how the increase in consumer income impacts the following items in the short run: d quantity
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:ECON 2302
Principles of Microeconomics
Module 3 Problem Set: Perfectly Competitive Markets
Answer the following question and submit to the appropriate space on Canvas.
Be careful to completely and correctly label all of the parts of any graph you draw. Please be a neat as
possible.
1. The AIA Car Wash is a representative firm in a purely/perfectly competitive, constant-cost
market. The market is currently in a long-run equilibrium.
a. Use the blank axes below to draw completely and thoroughly labeled side-by-side graphs
for the car wash market and for AIA Car Wash. Make sure that you clearly indicate the
price and quantity of car washes in the market and price and quantity for AIA Car Wash.
b. Car washes are a normal good. As the result of a remarkably healthy economy, a large
number of consumers get raises (larger paychecks). Use the graphs you drew above
to show how the increase in consumer income impacts the following items in the short
run:
i. Market price and quantity
ii. AIA's price and quantity
iii. Shade the rectangle representing AIA's profit or loss
C.
c. Imagine that a large number of new car washes start to open, competing with AIA. These
new car washes will drive down the price of a car wash. How low can the price of a car
wash drop before AIA Car Wash decides to stop providing their product?
Transcribed Image Text:3
d. How will the car wash industry adjust to the new long-run equilibrium following the
changes resulting from the increase in consumer income? Specifically, what will happen to:
i. Market price for car washes
ii. Quantity of car washes produced for the representative firm
iii. The number of businesses in the car wash market
Expert Solution
Step 1: Define perfectly competitive market
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In a perfectly competitive market, many small businesses compete by producing and selling comparable products or services. Features of a perfectly competitive market incorporate products that are homogenous across all businesses, a large number of purchasers and sellers with no single business having a significant market share, easy entry and exit for businesses with no restrictions, and complete and accurate knowledge available to all market participants regarding prices and quality.
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