Assignment 2

1. Jason, a high-school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price? Do the participants in the market agree that his experience is relevant if the market is perfectly competitive?
2. Refer to the graph below of a perfectly competitive market. How many units will the firm choose to sell, and at what price? In the short term, what will be the total revenue, total cost, and total profit of the firm? If at some point in the future the market price fell below $6 (for example where Point A is) what would the firm do?

3. Ed produces table lamps in the perfectly competitive desk lamp market.

• Fill in the missing values in the following table.
• Suppose the equilibrium price in the desk lamp market is $50. How many table lamps should Ed produce, and how much profit will he make?
• If next week the equilibrium price of desk lamps drops to $30, should Ed shut down? Explain.

Output / Week	Total Cost	AFC	AVC	ATC	MC
0	$100
1	$150
2	$175
3	$190
4	$210
5	$240
6	$280
7	$330
8	$390
9	$460
10	$540