2. The figure below shows a firm in a perfectly competitive market:
a. Determine the Shut- down Price
b. Identify the firmâ??s short run Supply curve (must specify all the letters representing the supply curve.)
3. Fill in the blanks to complete the following statements.
"Assume a perfectly competitive market is initially in long-run equilibrium. In the short run, a decrease in raw materials prices will cause the firm's average costs to ________. As a result, the profits of existing firms will _______. However, over the long run, this will cause the number of firms in the market to ________, and market price will ________ until firms once again earn a ----------- _______ _________"
4.Assuming the firm shown in the graph below is a perfectly competitive equilibrium rather than a monopolist, what would the price and output be if the firm wants to maximize profits?
5. A product's Market Demand Curve is: Qd = 25 - P, and its Market Supply Curve is: Qs = 10 + 2P. Plot the demand and supply curves on the same graph, then use the graph to respond to the following : When P = $20, what is the difference in output, if any, between Qd and Qs?
6. Consider the demand and supply curves in Q.5.
Assume market demand increases and that the new demand curve is now Qd = 50 ? P. Further assume the government provides to each firm, a subsidy of $40 per unit of output produced. Thus the supply curve now becomes Qs = 10 + 2(P+40).
Develop a graph for the new demand and supply curves. Then use the graph to find the new equilibrium price and quantity.
The new demand curve in this case is represented.