Mr. Holmes operates a firm which is having a problem competing with other firms. You have been hired to analyze the problem and make recommendations to help increase profits. After analysis you have determined that he is a perfectly competitive firm operating at too small a scale, but at a breakeven point in the short run. Be sure to label your graphs.
a) Draw two graphs, one for the market and the other for the firm, labeling the equilibrium price and quantity at which Mr. Holmes is currently producing..
b) On the same graph, in a) above show and explain what Mr. Holmes should do to help him achieve long run equilibrium.
c) Why is Mr. Holmes cost decreasing as he approaches long run equilibrium.