2. Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium....

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2. Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.

a. Draw a diagram showing Sparkle’s demand curve, marginal revenue curve, average total cost curve, and marginal cost curve. Label Sparkle’s profit-maximizing output and price.

b. What is Sparkle’s profit? Explain.

c. On your diagram, show the consumer surplus derived from the purchase of Sparkle toothpaste. Also show the deadweight loss relative to the efficient level of output.

d. If the government forced Sparkle to produce the efficient level of output, what would happen to the firm? What would happen to Sparkle’s customers?

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