1.) Consider a firm operating in amonopolistically competitivemarket.

Suppose the firm faces the followingdemandcurve:=200(1/5)

Total fixed costsare $10,000, andmarginal costis constant at $40.

(a)What is the equation for MR?

(b)Plot the diagram, showing the demand curve, MC, and MR.

(c)What quantity will the firm produce?

(d)What price will the firm charge?

(e)Calculate the firm's average total cost (at the quantity from part c).

(f)On the diagram, clearly indicate the area corresponding to profits or losses.

(g)Briefly describe (in words) what will happen in this market over the long run.

(h)How will thediagramchange over the long run?You can describe it in words, or you can provide a sketch showing how it changes.

2.)Consider a labor market characterized by a singlemonopsonistemployer.Maintain the assumption that the firm must pay all its employees the same wage.

Firm's marginal revenue product curve: P = 100 - Q

Labor supply curve: P = 10 + Q

Marginal factor cost curve: P = 10 + 2Q

(a) Plot the 3 curves, and label them.

(b) What quantity of labor will the firm hire?[In addition to writing the answer below, mark this value on your diagram from part a.]

(c) What wage will the firm pay? [In addition to writing the answer below, mark this value on your diagram from part a.]

(d) Suppose that the existing employeesform a unionand attempt to bargain for a higher wage.What is the highest wage they could bargain for that would keep all existing workers employed?That is, what is the maximum the firm would possibly be willing to pay to hire the quantity from part b?

(e) Suppose there is no union, but instead the government institutes a minimum wage of $50.In that case, what is the marginal cost of hiring the third worker?