Answer
a) Please see the graph.
b) Profits for the boat makers are zero (as firms leave the industry). The number of boat makers in the long run decreases.
Work Step by Step
a) Since the cost increases of the input, the cost of the boats will increase. The average total cost curve and the marginal cost curve both shift up. Originally, the firm's price and quantity were $P_{1}$ and $Q_{1}$, respectively.
However, with the shift of the average total cost curve and the marginal cost curve, the new price and quantity are $P_{2}$ and $Q_{2}$, respectively. This, in turn, shifts the market's supply curve from $S_{1}$ to $S_{2}$.
b)
Since the costs increased, some companies are losing money. With fewer firms in the market, the supply curve shifts to the left again. This shift in the supply curve raises prices to $P_{3}$, and the new market quantity is $Q_{3}$. Firms continue to enter and exit until there is no profit in the market.
