1. (15%) You are manager of College Computers, a manufacture of customized computers that meet thespecifications required by the local university. College computer is not the only firm that buildsthe computer to meet the university's specification. There are many other manufactures. To attachits student clientele, College Computers advertises its service by using "free service after the

sale" policy to differentiate itself from the competitors.

a. Identify the market structure in the above example and explain.

b. Suppose the demand for the computers produced by College Computers is Q =1000 - P. Its weekly cost of producing it is C(Q) = 2000 + Q^2. If other firms in the industry sell PCs at $600, what price and quantity of computers should you choose?

c. Given the answer from part b, what long run adjustment should you anticipate? Explain.

2. (10%) A firm sells its product in a perfectly competitive market where other firm charges a price of $40 per unit. The firm's total costs are C(Q) = 40 + 8Q + 2Q^2.

a. How much should the firm produce in the short run?

b. What price should the firm charge in the short run?

c. What is the firm's short-run profit?

3. (10%) Use the graph to explain how the long run equilibrium is reached in a perfect competitive

market?