onsider the perfectly competitive market for dress shirts. The following graph shows the marginal cost (MC), average total cost (ATC), and average ariable cost (AVC) curves for a typical firm in the industry. 100 90

Illustrate to the right, a graph showing a company being profitable in a competitive market in the Long Run selling its product at Market Price (MP*) based on its Average Variable Cost (AVC) and Average Total Cost (ATC) and Marginal Cost (MC). Identify each key point on the graph. Observe the Short - Run Loss information illustrated in the graph to the right. With respect to Price (P*"), Average Variable Cost (AVC), Average Total Cost (ATC), Marginal Revenue (MR), and Marginal Cost (MC), what assumption would you make if the firm was selling its product at P What would happen if this were to continue in the long run? Is there a Shut Down point? ** ? Notice that MR = P

Costs and revenues C р 0 ATC MC D = AR MR Output Given the situation in the market, what will happen in this market in the long run? Most firms will shut down. Firms will enter the industry and the ATC curve will shift downwards due to economies of scale. Firms will leave the industry until supply of goods falls and zero economic profits are made. Firms will leave the industry and the industry will collapse.

qD = 100 – 0.5p,  qS = 2p – 20 What is the price elasticity of supply? Is the situation modeled here more likely to be reflecting a short- or long-run equilibrium? Why?

A firm's short-run production function is q = 3L0.2, while its cost function is C = 2L. Furthermore, the firm can sell its output in a perfectly competitive market at p = 40. 6.1 Find the value of the firm's profit when L = 50. L that satisfies the first-order condition for profit 6.2 Calculate the level of maximization. 6.3 Calculate the value of the second order derivative (SOD) that ensures profit is being maximised at the value of L found in 6.2 .