Question

28. Suppose that the market for porcelain lupines in Freedonia is perfectly competitive and initially in a long run equilibrium. Porcelain lupines are normal goods in Freedonia and are produced with a computer aided technology. Porcelain lupines and ceramic roses are substitutes while porcelain lupines and glass vases are complements. Suppose that incomes rise in nearby Anviliania and in Freedonia. After adjustment to the new long run equilibrium, a. the firms in the porcelain lupine industry will each be producing more output. b. the remaining firms in the industry will each be producing less output. c. the firms in the porcelain lupine industry may each be producing more output, depending on the size of the change in income. d the firms in the porcelain lupine industry will be earning the same profit as they did before the change in income. e. the firms in the porcelain lupine industry will each be earning positive profits.