1.) Auctio sells sprockets in a perfectly competitive market. Below are its short-run total variable costs at different output levels. The firm's fixed cost is $5. The market price of one sprocket is $8.

Units | Total Variable Cost

0 $0

1 $12

2 $18

3 $22

4 $28

5 $35

6 $43

1. What is the average total cost of the 5th unit?
2. What is the first unit of output where diminishing marginal returns have begun?
3. What profit or loss would Auctio earn at its profit maximum? Show your work.
4. Would Auctio operate in the short run? Explain.
5. Would Auctio stay in the market in the long run? Explain.

2.) Product G is sold in a perfectly competitive, constant-cost industry.

a. Draw a side-by-side graph for product G showing the market in long-run equilibrium with an individual firm earning normal profit. Label each of the following:

i. The market's equilibrium price (P_E) and quantity (Q_E)

i. The firm's profit-maximizing quantity (Q_E)

b. How would it affect the quantity demanded if the government imposed a price floor below P_E?

c. The price of F, a complement for product G, decreases. Illustrate on your graph from part (a) the result of this in the short run.

i. Label the new market price (P₂) and new market quantity (Q₂).

i. Shade completely any profit or loss for the firm.

d. The price of F decreased by 5 percent, while the quantity demanded of G changed by 20 percent. What is the cross-price elasticity of G and F?

e. What happens to the productive efficiency of the firm in the short run as a result of the change described in part (c)?

f. What will happen to the price of G in the long run? Explain.

g. In long-run equilibrium, the individual firm produces 200 units of G. At that level of output, its total cost is $1,000. If the firm is earning normal profits, what must be the market price?

h. The whole market from part (g) clears at a quantity of 2 million units in the long run. If the constant long-run supply would intersect the y-axis at $2 and the demand curve intersects the y-axis at $8, what is the consumer surplus?

3.) Assume that the firm above operates in a perfectly competitive market.