1.A representative firm in a perfectly competitive market has the production function shown in the table below.Workers are paid $1000 per week and the firm has fixed costs of $500 per week. Answer the questions below about a firm with this production function and costs.

The following questions are not about the table but about concepts related to costs and perfect competition.

a.Why does increasing the quantity of output result in a decrease in the average total cost in the long run when firms experience economies of scale? Be sure to use the definition of average total cost and your understanding of production to answer this question.

b. The figure below represents cost curves for a typical firm in a perfectly competitive industry.Draw the marginal revenue curve for this firm if the firm is operation (not shut down) in the short run, but will exit the market in the long run.Explain why you chose this position.(There is no need to spend a lot of time recreating this graph on your test sheet.You will be graded on the position of the MR curve and your explanation, not your ability to draw cost curves.)

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