#Workers Output TFC TVC MC AVC ATC
0 0
25 100
50 150
75 175
100 195
125 205
150 210
175 212
Problem 1. Consider a firm in a perfectly competitive industry. The firm has just built a plant that costs $15,000. Each unit of output requires $5 worth of materials. Each worker costs $3 per hour.
(a) Based on the information above, fill in the table above
(b) If the market price is $12.50, how many units of output will the firm produce?
(c) At that price, what is the firms profit lost? Will the firm continue to produce in the short run? Carefully explain your answer.
(d) Graph the results.
Problem 2. Draw graphs showing a perfectly competetive firm and industry in long-run equilibrium.
(a) How do you know that the industry is in long run equilibrium?
(b) Suppose that there is an increase in demand for this product? Show and explain the short-run adjustment process for both the firm and the industry.
(c) Show and explain the long run adjustment process for both the firm and the industry. What will happen to the number of firms in the new long-run equilibrium?
Problem 3: Draw a graph for a perfectly competitve firm and identify the shut dwonpoint, the breakeven point and the and the firms short-run supply curve, using Marginal Cost, Average Total Cost, and Average Variable Cost.