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The Scottish milk industry is perfectly competitive, and is initially in long-run equilibrium, with 1000 dairy farmers each producing 1000 liters of milk per day, so 1 million liters per day in total. Draw a diagram showing the individual dairy farmer's equilibrium.
a) Show the effect of an increased demand for milk, both in the short run and in the long run.
b) How would your answer change if the government had required all dairy farmers to be licensed, and had only issued 1000 licenses?
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