1. The following graph shows the cost curves for a perfectly competitive firm. Identity the shutdown point, the breakeven point, and the firm's short-run supply curve.
2. Draw graphs showing a perfectly competitive 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?
3. The following graph shows a firm in a monopolistically competitive industry.
(a) Show the firm's short-run profit-maximizing quantity and price. Is the firm making a profit?
(b) Carefully explain what will happen in the industry over time, and draw a graph of a monopolistically competitive firm in long-run equilibrium.
