Assume that (1) the lowest point on the LAC curve of each of the many identical firms in

a perfectly competitive industry is $4 and it occurs at the output of 500 units, (2) in this

plant, the short-run average cost of producing 600 units=$4.50. Qd= 70,000 - 5,000P and

Qs=40,000 + 2,500P.

a. Begin by showing the firm's position based on the information given. Show the

firm's LAC, SAC and MC and include numbers given.

b. Solve for equilibrium in the market. Provide a graph of the market in equilibrium.

Label the equilibrium price and quantity.

c. How many firms are in the market?

d. There is an increase in demand: Qd'= 100,000 - 5,000P Find the new short-run

equilibrium price and quantity for the industry and the firm. Illustrate the firm and

industry position using the same graph from above. Include numbers.

e. Are firms earning profits or losses at this new equilibrium point? What does it

equal?

f. If the supply function changes to Qs' = 70,000 + 2,500P, what are the new

equilibrium price and quantity for this industry? Use the same graph from above

to show this position. Include appropriate numbers.

g. How many firms will now be in the industry?

h. What type of industry is this based on your calculations? Explain.