1. In side-by-side diagrams illustrate two perfectly competitive firms in long-run equilibrium where the firms have identical AC but the firm on the right has higher fixed costs. Using these diagrams illustrate and explain which firm: left (low fixed costs) or right (high fixed costs) is more likely to survive if the long-run equilibrium is interrupted by a severe recession.

2. The wood pallet industry is perfectly competitive. In addition, suppose that that each firm has an identical total cost function TC = 400 + 5q + q2 , corresponding to MC = 5 + 2q. The market demand curve for this industry is Q = 262.5 - .5P. In the long-run, what is the equilibrium price and how many firms are operating in this industry? Fully explain the economics of how your answer is derived. Do not use calculus. Note: the diagram of a perfectly competitive firm in the long run may prove helpful.

3. Consider a monopoly with an upward sloping marginal cost curve. What is the effect of an increase in marginal cost on the monopolist's price? What is the effect on the monopolist's revenue?