Frances sells earrings in the perfectly competitive earring market. Her output per day and costs are as follows:
OUTPUT PER DAY TOTAL COST
0 1
1 2.5
2 3.5
3 4.2
4 4.5
5 5.2
6 6.8
7 8.7
8 10.7
9 13
a) If the current equilibrium price in the earring market is $1.8, how many earrings will Frances produce, what price will she charge, and how much profit (or loss) will she make?
b) Suppose the equilibrium price of earrings falls to $1. Now how many earrings will Frances produce, what price will she charge, and how much profit (or loss) will she make? Show your work.
c) Suppose the equilibrium price of earrings falls to $0.25. Now how many earrings will Frances produce, what price will she charge, and how much profit (or loss) will she make?