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"1.Assume initially all firms that produce a product X in a perfectly competitive market earn normal profit. There is a drop in consumers' preference for X such that the market demand decreases.
(i) What will happen to all the firms in the short run equilibrium? Explain with a suitable industry and firm diagram.
(ii) How would the firms adjust to the long run equilibrium? Explain with a suitable industry and firm diagram.
2.Explain with the aid of a diagram why monopoly is inefficient but perfect competition is efficient. Is it valid to say that monopoly is no good and hence the government should break up all monopolists and convert them into perfect competition.
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