Consider a firm facing conventional technology with U-shaped AVC and

ATC and MC. The firm wants to maximize profits given an exogenously fixed price of P = $20. Further, suppose the firm correctly determines that its short run profit maximizing output is 1000 given its costs and the exogenously fixed price of $20.

Question 1A

Using the axes as constructed below, depict marginal revenue and marginal cost curves that would support the conclusion that the optimal short run output is q = 1000. Be sure to label all important values.

Is this a short run equilibrium? Explain.

Question 2A

Reproduce your graph from Question 1, but add an average total cost curve to the picture in such a way that the firm is earning zero profits ( = 0).

Upload your graph.