Homework Answers
1. Increase in the demand for S causes price and quantity to increase since p1>p0 and q1>q0.
2. In the short run, firms in the service industry will experience profits due to the increase in the demand of S.
Corresponding to q1, the price charged is p1 while the costs are at point a on the ATCs curve. This difference between the price charged and ATC (costs) is the profit of the firm.
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