In the diagram below, the firm (one of a 1000 in the industry) is operating in a perfect competition market. Add the Price lines on the diagram and complete the questions in Parts 1, 2, and 3.

Part 1

a)At a market price of $7 what is the Marginal Revenue for this firm?

b)At a market price of $7 what is the Average Revenue for this firm?

c)At a price of $7 how many units will this firm produce in the short run to maximize profit? (Round off your answer to the nearest 100 units)

d)What is the cost per unit? (See ATC)

e)What will be its profit or loss per unit?

Part 2 -

a)At a market price of $5.50 what is the Marginal Revenue for this firm?

b)At a market price of $5.50 what is the Average Revenue for this firm?

c)At a price of $5.50 how many units will this firm produce in the short run to maximize profit?

d)What is the cost per unit? (See ATC)

e)According to the textbook, at a market price of $5.50 does the industry achieve productive efficiency or allocative efficiency. Discuss based on your readings.

PART 3

a)At a product price of $3 how does Marginal Revenue compare to Average Variable Costs?

b)At a product price of $3 will it produce any units? If not, why not?

c)Now if many firms leave the market because of the low market price how will this affect supply? the market price?

$10 MG ATC 9 8 AVC Cost per unit A 2 2 3 4 5 6 7 8 9 10 Quantity (in 1,000s)