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Name: Period: Perfect Competition and Efficiency Part 1: Chart Practice- Assume that you sell homemade birdhouses. Your only fixed cost is the weekly rent you pay to use a small workshop. Use the chart below showing your weekly total cost for different quantities of birdhouses to answer the questions 1. How much does it cost to rent your workshop each week? Quantity Total Marginal Cost Cost 2. What is the profit maximizing quantity if you can 0 $30 sell each birdhouse for $50? $40 2 $48 3. Calculate your profit or loss if you can sell each $54 birdhouse for $50. Show your work. 4 $66 4. If the price is $50, will other birdhouse $80 producers enter the market or exit the market in 6 $102 the long run? Explain your answer. $135 5. Assume the demand for birdhouses goes down 8 $190 and you can sell each one for only $15. What is the profit maximizing quantity? 6. If the price is $15, will other birdhouse producers enter the market or exit the market in the long run? Explain your answer. 7. Assume that the demand for birdhouses goes down even further and you can sell each one for only $7. How much profit or loss would you earn if you produced where the marginal revenue equals the marginal cost? 8. If the price is $7, should you produce the profit maximizing quantity or shut down in the short run? Explain your answer. Part 2: Stretch Your Thinking- Your friend wants to become your new business partner in the production of birdhouses. He makes two suggestions to you about your business. Explain why his suggestions are wrong. 9. As long as we are making a positive accounting profit, our economic profit does not matter. 10. We should always produce the productively efficient quantity of birdhouses. That will maximize out profit. Micro Problem Set 3- Part 6