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    long run adjustment process

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    #Workers Output TFC TVC MC AVC ATC
    0 0
    25 100
    50 150
    75 175
    100 195
    125 205
    150 210
    175 212

    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?
    © 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.

    2. Draw graphs showing a perfectly competetive firm and industry in long-run equilibrium.
    (@) 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.

    © 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.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.

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    Solution Summary

    The long run adjustment process is summarized.

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