1. The data in the table is for a typical firm in a competitive industry (with identical firms). The firm can choose to have either 1 unit of capital or 2 units of capital in the long run. The two short-run average total cost curves (ATC1 and ATC2) and the two marginal cost curves (MC1 and MC2) are given in the table below.

a. Suppose the firm is currently producing with 2 units of capital. If the current price is $9 per unit, how much will the firm produce? How much are its profits?

b. Suppose the price falls to $7 per unit. How much will the firm produce now? How much are its profits?

c. What is the long-run ATC of the firm? Will the firm contract its output when it is able to change its capital?

d. What is the long-run industry equilibrium price and quantity for the typical firm? If there is a market demand of 4,000 units at that price, how many of these identical firms will there be in the industry?

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Costs with Quantity ATC, 1234567 7.0 5.5 4.7 1 Unit of Capital Costs with 2 Units of Capital MC2 MC, ATC2 10.0 7.5 6.3 4.5 5.5 4.6 5.0 6 4.8 4.8 5.1 4.9 8 5.5 5.0 9 5.9 5.2 10 6.3 5.5 11 6.7 11 5.8 12 7.2 6.2 10 543456789012 654334567890