Question 1: Sparkle is one firm of many in the market for toothpaste, which is in long-run equilibrium.

Draw a diagram showing Sparkle's demand curve (AR), marginal revenue (MR), Average Total Cost (ATC) and marginal cost curve (MC). Label Sparkle's profit maximizing Q and P and its profit.

b) If the government forced Sparkle to produce at efficient level of output, what would happen to the firm? Loss? Profit? Or shut down? Explain

c) If instead sparkle was operating a perfectly competitive market, what would the long run equilibrium look like? Draw the long run equilibrium and compare it with the long run equilibrium in a) above. Note all the differences and similarities that you see.