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Graph out this situation using a single supply and demand diagram representing one firm
Graph out this situation using a single supply and demand diagram representing one firm.
Label the initial equilibrium price and quantity (P1, Q1);
Then demand increases, creating an excess demand.
The firm can either respond by increasing price along a stationary supply curve - label this equilibrium price and quantity with (P2, Q2); or by increasing supply - label this equilibrium price and quantity with (P3, Q3).
In your diagram, label the producer surplus areas under both equilibriums (P2, Q2) and (P3, Q3).
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