Problem: Assume that a firm sells its product in a perfectly competitive market. The firm's fixed costs (including a "normal" return on the funds the entrepreneur has invested in the firm) are equal to $100 and its variable cost schedule is as follows:
Output (Units) Variable Cost per Unit
50 $5.00
100 4.50
150 4.00
200 3.50
250 3.00
300 2.75
350 3.00
400 3.50
1. Find the marginal cost and average total cost schedules for the firm.
2. If the prevailing market price is $4.50, how many units will be produced and sold?
3. What are total profits and profit per unit at the output level determined in part (b)?
4. Is the industry in long-run equilibrium at this price? Explain.