Firm A operates in a perfectly competitive market in a constant-cost industry and is earning positive economic profit.

1. How does Firm A determine its profit-maximizing price? Explain.
2. Draw correctly labeled side-by-side graphs for Firm A and the market it operates in. Label the axes and all of the following:
3. Market price (PE) and market quantity (QE)
4. The firm's quantity of output (Qe)
5. The firm's average total cost (ATC)
6. Completely shade the area of the firm's profit.
7. Identify whether the following increase, decrease, or remain constant as the market moves to long-run equilibrium:
8. Market equilibrium quantity
9. Market equilibrium price
10. Assume the product that Firm A produces has a positive externality. Draw the marginal social benefit (MSB) on the market graph from part (b).
11. Will the unregulated market produce more or less than the socially optimal quantity?
12. Shade the area of deadweight loss caused by the externality when the market is unregulated and in long-run equilibrium.

Goods H, I, and J are related goods, each operating in a perfectly competitive market.

1. As the price of Good H increases from $4 to $5, its quantity demanded falls from 100 units to 60 units. Calculate the price elasticity of demand for this range.
2. Good H is an input for Good I. Illustrate the effect of the price change from part (a) on a fully labeled supply and demand graph for Good I. Label the equilibrium price(s) and quantity or quantities. Use arrows to indicate any shifts.
3. On your graph from (b), shade the consumer surplus in market for Good I after the change in part (a).
4. The equilibrium price for Good J is $5, and the equilibrium quantity is 40 units. The cross-price elasticity of Good J with Good H is 2.
5. Are Good J and Good H normal goods, inferior goods, complementary goods, or substitute goods?
6. Calculate the new equilibrium quantity of Good J after a 50% price increase for Good H.