Policy Perspective: suppose that the market demand schedule for Frisbees is

Price $8 $7 $6 $5 $4 $3 $2 1$

Quantity demanded: 1000 2000 4000 8000 16000 32000 64000 150000

Suppose that the marginal and average costs of Frisbee production for every competitive firm are:

Rate of Output 100 200 300 400 500 600

Marginal Cost $2.00 $3.00 $4.00 $5.00 $6.00 $7.00

Average total cost $2.00 $2.50 $3.00 $3.50 $4.00 $4.50

Finally assume that the equilibrium market price is $ 6 per Frisbee

a. Draw the cost curves of the typical firm

b. Draw the market demand curve and identify market equilibrium

c. How many Frisbees are being sold in equilibrium

d. How many (identical) firms are initially producing Frisbees

e. How much profit is the typical firm making

f. In view of the profits being made, more firms will want to get into Frisbee production. At what equilibrium price are all profits eliminated

g. How many firms will be producing Frisbees at this price