1) Consider a perfectly competitive firm when its industry is in long-run equilibrium. In this case, A) price is greater than marginal cost. B) marginal revenue is greater than marginal cost. C) price equals minimum short-run and long-run average total cost. D) economic profits are greater than zero. E) average fixed costs are at the maximum.

2. The following table shows the marginal product of capital (MPK) and marginal product of labour (MPL) for each of several methods of producing 1000 kilograms of flour per day MPk MPl A 14 3 B 12 6 C 10 9 D 8 12 E 6 15 F 4 18 G 2. 21 a) As we move from A to G, are the production methods becoming more or less capital intensive? Explain. (1.5 marks)

b) If capital costs $8 per unit and labour costs $4 per unit, which production method minimizes the cost of producing 1000 kilograms of flour? (1 marks)

c) For each of the methods that are not cost minimizing (with the factor prices from part (b)), describe how the firm would have to adjust its use of capital and labour to minimize costs. (1.5 marks)

d) Now suppose the price of capital falls to $4 per unit and the price of labour rises to $6 per unit. Which method now minimizes costs? (1 mark)

3. Each Scenario below provides the price and output level at which a single-price monopolist is currently operating. In each case, determine the firms profit per unit, the firms total profit, and whether the firm should increase or decrease its output in order to maximize profits, assuming the firm does not shut down. (Drawing diagrams may help you to answer these questions. Prices and costs are in dollars) (1 mark, each part) a) P = 15, Q = 600, MR = 7, ATC = 5, MC = 7 b) P = 18, Q = 300, MR = 13, ATC = 5.50, MC = 3.50 c) P = 11, Q = 680, MR = 2, ATC = 6, MC = 9 d) P = 15, Q = 600, MR = 7, ATC = 17, MC = 7 e) P = 13, Q = 700, MR =1. 75, ATC = 12.50, MC = 9