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Suppose that the U.S. textile industry is competitive, and there is no international trade in textiles. In long-run equilibrium, the price per unit of cloth is $30.
a. Describe the equilibrium using graphs for the entire market and for an individual producer.
Now suppose that textile producers in other countries are willing to sell large quantities of cloth in the United States for only $25 per unit.
b. Assuming that U.S. textile producers have large fixed costs, what is the short-run effect of these imports on the quantity produced by an individual producer? What is the short-run effect on profits? Illustrate your answer with a graph.
c. What is the long-run effect on the number of U.S. firms in the industry?
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