attached are the files containing the questions. Module 3 Problem Set: Perfectly Competitive MarketsAnswer 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 aspossible.1. The AIA Car Wash is a representative firm in a purely/perfectly competitive, constant-costmarket. The market is currently in a long-run equilibrium.a. Use the blank axes below to draw completely and thoroughly labeled side-by-side graphsfor the car wash market and for AIA Car Wash. Make sure that you clearly indicate theprice 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 largenumber of consumers get raises (larger paychecks). Use the graphs you drew aboveto show how the increase in consumer income impacts the following items in the shortrun:i. Market price and quantityii. AIA's price and quantityiii. Shade the rectangle representing AIA's profit or lossc. Imagine that a large number of new car washes start to open, competing with AIA. Thesenew car washes will drive down the price of a car wash. How low can the price of a carwash drop before AIA Car Wash decides to stop providing their product? d. How will the car wash industry adjust to the new long-run equilibrium following thechanges resulting from the increase in consumer income? Specifically, what will happen to:i. Market price for car washesii. Quantity of car washes produced for the representative firmiii. The number of businesses in the car wash market

Answered: Be careful to completely and correctly…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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^{attached are the files containing the questions.}

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

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Step 1: Introduce the concept of perfectly competitive market.

In a perfectly competitive market, many small firms 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 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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