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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.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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